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W A S H .N G T O N



January 13, 1965.

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Legislative Prospects for Legislation
Reducing 25 percent Gold C o v e r .

ChairmaryMartin and I talked wit h Senator Willis
^ Robertson this morning regarding the proposed gold cover
legislation. Sen§ tp£yBennett was also present at Senator
Robertson's invi'tatlon. After our conversation Senator
Robertson apparently understood the necessity for action
to reduce the current gold cover, although he made no
commitment as to what his final position would be. He
did agree to take the legislation up promptly and hold
As a result of our conversation three possible
pitfalls appear:
First — Senator Bennett said that the Republican
leadership was considering taking a party position against
any change, more or less irrespective of the merits.
Second -- We will have to propose legislation later
in the spring eliminating or substantially reducing the
silver content in our coins. Both Senator Robertson and
Senator Bennett felt it important that these two matters
not get mixed up together, and that the gold cover legis­
lation should be expedited as much as possible so as to
get it out of the w a y before it becomes necessary to
consider the silver coinage legislation. I fully agree
with them on this point. If we are to meet this schedule
we will, at an appropriate time, nee d the vigorous support
of Mr. O'Brien's office with both the House and Senate



Third and most important -- Removal of the gold cover
requirement on Federal Reserve deposits leaves the respon­
sibility for controlling credit expansion solely up to
the Federal Reserve Board with no legal limitation at all.
This, in the eyes of Senators Robertson and Bennetf,greatly
increases the importance of maintaining the full independence
of the Federal Reserve. Senator Robertson went so far as
to say that he doubted if he could support any legislation
unless there were categoric assurances that the Administration
favored the continued independence of the Federal Reserve,
and that Mr. Patman's attempts to subordinate it to the
Executive would be resisted. I am sure that this view will
be widely held. Unless we are in a position to give such
assurances, the gold cover legislation could have unnecessarily
rough sailing.
CharIs Walker of the ABA showed me an advance copy of
a speech he is planning to make in Houston, Texas next
Wednesday. After discussing the pros and cons of action
on the gold cover he comes to the cnnclusion that the
present requirement should be reduced, but not removed.
However, he states that "this should be done only if the
Administration makes it clear that the independence of the
Federal Reserve System within government will be maintained;
and only if the financial community and the American people
are assured that actions to correct the balance-of-payments
deficit will be intensified."
I realize this may cause some problems with Mr. Patman,
but nevertheless I would propose to testify, as I have in
the past, in favor of the continued independence of the
Federal Reserve. I w ould also propose to state that this
is the position of the Administration. I believe this is
in accord wit h statements you have made over the past few
months. It is likely that some time in the coming weeks,
when this matter is before the Congress, you will get a
similar question at one of your press conferences.
With this exception, it does not now appear to me that
we should have any major difficulty wit h the gold cover
legislation, although it will probably bring forth some
emotional testimony, editorials and speeches.

Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102