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BRETTON WOODS AGREEMENTS ACT

HEARINGS
BEFORE THE

COMMITTEE ON BANKING AND CURRENCY
UNITED STATES SENATE
SEVENTY-NINTH CONGRESS
FIRST SESSION
ON

H. R. 3314
AN ACT TO PROVIDE FOR THE PARTICIPATION OF
THE UNITED STATES IN THE INTERNATIONAL
MONETARY FUND AND THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

JUNE 12, 13, 14, 15, 16,18, 19, 20, 21, 22, 25, AND 28, 1945

[REVISED]
Printed for the use of the Committee on Banking and Currency

76673




U N I T E D STATES
GOVERNMENT P R I N T I N G O F F I C E
WASHINGTON : 1945

COMMITTEE ON BANKING AND CURRENCY
ROBERT F. WAGNER, New York, Chairman
CARTER GLASS, Virginia
CHARLES W. TOBEY, New Hampshire
ALBEN W. BARKLEY, Kentucky
ROBERT A. TAFT, Ohio
JOHN H. BANKHEAD 2d, Alabama
JOHN THOMAS, Idaho
GEORGE L. RADCLIFFE, Maryland
HUGH A. BUTLER, Nebraska
SHERIDAN DOWNEY, California
ARTHUR CAPPER, Kansas
ABE MURDOCK, Utah
C. DOUGLASS BUCK, Delaware
JAMES G. SCRUGHAM, Nevada
EUGENE D. MILLIKIN, Colorado
ERNEST W. McFARLAND, Arizona
BOURKE B. HICKENLOOPER, Iowa
GLEN H. TAYLOR, Idaho
J. WILLIAM FULBRIGHT, Arkansas
HUGH B. MITCHELL, Washington




DAVID DELMAN, Clerk

CO N T E N T S
Statement of—
Page
Acheson, Dean, Assistant Secretary of State, Washington, D. C
19, 29
Anderson, Benjamin M., professor of economics, University of California, Los Angeles, Calif
388
Beckhart, B. H., director of research, Chase National Bank, New
York, N. Y
404
Bernstein, E. M., Treasury Department, technical adviser and
executive secretary of the delegation of the United States to the
Bretton Woods Conference
172
Brown, Edward E., chairman of the board, First National Bank,
Chicago,
Ill
91
Burgess, W. Randolph, president, American Bankers Association
468
Coogan, Gertrude M., economic and financial analyst, Chicago,
Ill
435
De Vegh, Imrie, consulting economist, New York City
350
Diefendorf, Charles H., president, Marine Trust Co.,Buffalo, N. Y__
251
Finucane, Bernard E., president, Security Trust Co., Rochester, N. Y_
241
Goss, Albert S., master, National Grange
425
Creaves, Percy L., Jr., National Economic Council, New York, N. Y__
380
Hart, Merwin K., president of National Economic Council, New York,
N. Y
359
Hemingwav, W. L., president, Mercantile Commercial Bank & Trust
Co., St. Louis, Mo
491
Luxford, Ansel F., Assistant to the Secretary, Treasury Department,
Washington, D. C
221, 298
Morgenthau, Hon. Henry Jr., Secretary of the Treasury, Washington,
D. C
6
Murphy, William S., Washington representative, Western Economic
& Mining Affiliates, Inc
504
Palyi, Melchior, consulting economist, Chicago,
Ill
270
Boig, Harold J., vice president, W. R. Grace & Co
515
Sproul, Allan C , president, Federal Reserve Bank of New York, New
York, N. Y
.-__
301
Thomas, Hon. Elmer, United States Senator from the State of Oklahoma
500
White, Hon. Harry D., Assistant Secretary of the Treasury, Washington, D. C
57, 123, 159, 174, 179, 217, 523
Wilken, Carl H., economic analyst, Raw Materials National Council,
Sioux City, Iowa; appearing in behalf of the National Association
of Commissioners, Secretaries, and Directors of Agriculture; also
the Raw Materials National Council
432
Williams, John H., vice president, Federal Reserve Bank, New York,
N. Y
318
Exhibit , statements, letters, etc., submitted for the record by—
American Association of University Women, Washington, D. C ,
letter
459
American Farm Bureau Federation:
Letter of Edward A. O'Neal, president
145
Statement of Edward A. O'Neal, president
147
American Labor Party, letter
457
Bernstein, E. M., technical adviser and executive secretary of the
delegation of the United States to the Bretton Woods Conference,
article written by, entitled "Scarce Currencies and the International Monetary Fund"
621
Butler, Hon. Hugh A., article from the Chicago Daily Drovers Journal
of June 23, 1945, entitled "The Answer"
.
587
Chamber of Commerce of the United States of America, letter enclosing statement entitled "Memorandum on Bretton Woods Agreements Bill" also booklet entitled "Bretton Woods Program"
590




IV

CONTENTS

Exhibits, statements, letters, etc.—Continued
Congress of Industrial Organizations:
Letter of Philip Murray, president
Statement of James B. Carey, secretary-treasurer
Coogan, Gertrude, additional statement entitled "Citations of Some of
the United States Banking Statutes and Their Interpretation in
Banking Practice"
Copy of bill, H. R. 3314
Council for Social Action of the Congregational Christian Churches
of the United States of America, letter
Eccles, M. S., Chairman, Board of Governors of the Federal Reserve
System:
' Letter
Statement
Economists' Committee on the Bretton Woods program, Cambridge,
Mass., letter enclosing notes also a booklet entitled "Recommendations of Economists for United States Approval of the Bretton
Woods Monetary Agreements"
Flanders, Ralph E., chairman of the research committee of the Committee for Economic Development, letter
Friedman, Elisha M., New York, N. Y., statement entitled "Memorandum to the Senate Committee on Banking and Currency on the
Bretton Woods Proposals for an International Monetary Fund and
for an International Bank for Reconstruction and Development"-.
Goss, Albert S., letter to Miss Mildred Mahood, re Bretton Woods
proposals
Greaves, Percy L., Jr., letter
Harris, Seymour E., article written by, entitled "The Case for Bretton
Woods Agreements"
Independent Bankers Association, letter and report recommending
adoption of Bretton Woods agreements
Joint statement of Treasury and State Departments entitled "Constitutionality of the Bretton Woods Agreements Act"
Leon, Rene, Princeton, N. J., statement
Luxford, Ansel F., Assistant to the Secretary, Treasury Department,
memorandum re international sanitary pacts
Mollin, F. E., executive secretary of the American National Livestock
Association of Denver, telegram re memorandum on international
sanitary pacts
Morgenthau, Hon. Henry, Jr., article written by, entitled "Bretton
Woods and International Cooperation"
Murphy, W. S., address entitled "Gold and Silver and Western Industrialization"
National Farmers Union, telegram
National League of Women Voters, statement
Pennsylvania Co., Philadelphia, Pa., letter and memorandum on
Bretton Woods agreements
..
Scherman, Harry, member of the research committee of the Committee
for Economic Development, statement
.
Sprague, Oliver M. W., professor of banking, Harvard University,
-letter
State Department, tabulation entitled "Articles and Services to be
Furnished Under Lend-Lease During Fiscal Year 1946 by the
Foreign Economic Administration (based on appropriation request)"
Taft, Hon. Robert A.:
Address of Lord Keynes before the House of Lords on May 23,
1944
Excerpts from Department of State Publication 2187, Conference
Series 55, entitled "United Nations Monetary and Financial
Conference"
Financial agreement between Great Britain and French Republic.
Monetary agreement between Great Britain and Sweden
Protocol between the Government of the United Kingdom and
the Belgian Government regarding mutual aid
Statement entitled "Some Aspects of American Experience in
Foreign Lending"



Page
603
604
570
1
458
521
521

459
383

652
426
636
632
453
529
466
585
586
606
511
603
157
456
384
451

450
209
661
195
185
214
564

CONTENTS
Exhibits, statements, letters, etc.—Continued
Tobey, Hon. Charles W., article from American Banker entitled "The
Bretton Woods Compromise"
Treasury Department, statement entitled "Gold Subscriptions to the
Fund"
Trevor, John B., on behalf of the American Coalition, statement
Viner, Jacob, University of Chicago, views of, re Bretton Woods
agreements
W. R. Grace & Co., New York, N. Y., letter re testimony of W. L.
Hemingway
Walters, August, Newark, N. J., letter enclosing modern finance plan_
Waters, Mrs. Agnes, Washington, D. C , statement
White, Hon. Harry D., article written by, entitled "The Monetary
Fund: Some Criticisms Examined"
Williams, John H., dean, Graduate School of Public Administration,
Harvard University, booklet entitled "The Bretton Woods Agreements"




V
Page
70
562
645
637
499
588
636
613
319




BRETTON WOODS AGREEMENTS ACT
TUESDAY, JUNE 12, 1945
UNITED STATES SENATE,
COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C.
The committee met at 10:30 a. m., pursuant to call, in room 301,
Senate Office Building, Senator Robert F. Wagner (chairman) presiding.
Present: Senators Wagner (chairman), Barkley, Bankhead,
Downey, Murdock, Fulbright, Mitchell, Tobey, Taft, Butler, Capper,
Buck, Millikin, and Hickenlooper.
The CHAIRMAN. The committee will come to order. We are considering the Bretton Woods agreements and the bill which passed
the House of Representatives June 7, 1945, H. R. 3314, will be made
a part of the record.
(The bill, H. R. 3314, is as follows:)
[H. R. 3314, 79th Cong., 1st sess.]
AN ACT To provide for the participation of the United States in the International MonetaryFund and the International Bank for Reconstruction and Development

Be it enacted by the Senate and House of Representatives of the United States
of America in Congress assembled,
SHORT TITLE

SECTION 1. This Act may be cited as the "Bretton Woods Agreements Act."
ACCEPTANCE OF MEMBERSHIP

SEC. 2. The President is hereby authorized to accept membership for the United
States in the International Monetary Fund (hereinafter referred to as the
"Fund"), and in the International Bank for Reconstruction and Development
(hereinafter referred to as the "Bank"), provided for by the Articles of Agreement of the Fund and the Articles of Agreement of the Bank as set forth in the
Final Act of the United Nations Monetary and Financial Conference dated
July 22, 1944, and deposited in the archives of the Department of State.
APPOINTMENT OF GOVERNORS, EXECUTIVE DIRECTORS, AND ALTERNATES

SEC. 3. (a) The President, by and with the advice and consent of the Senate,
shall appoint a governor of the Fund who shall also serve as a governor of the
Bank, and an executive director of the Fund and an executive director of the
Bank. The executive directors so appointed shall also serve as provisional
executive directors of the Fund and the Bank for the purposes of the respective
Articles of Agreement. The term of office for the governor of the Fund and of
the Bank shall be five years. The term of office for the executive directors shall
be two years, but the executive directors shall remain in office until their successors have been appointed.
(b) The President, by and with the advice and consent of the Senate, shall
appoint an alternate for the governor of the Fund who shall also serve as alter-




2

BRETTON WOODS AGREEMENTS ACT

nate for the governor of the Bank. The President, by and with the advice and
consent of the Senate, shall appoint an alternate for each of the executive directors. The alternate for each executive director shall be appointed from among
individuals recommended to the President by the executive director. The terms
of office for alternates for the governor and the executive directors shall be the
same as the terms specified in subsection (a) for the governor and executive
directors.
(c) No person shall be entitled to receive any salary or other compensation
from the United States for services as a governor, executive director, or alternate.
NATIONAL ADVISORY COUNCIL ON INTERNATIONAL MONETARY AND FINANCIAL
PROBLEMS

SEC. 4. (a) In order to coordinate the policies and operations of the representatives of the United States on the Fund and Bank and of all agencies of
the Government which make or participate in making foreign loans or which
engage in foreign financial, exchange, or monetary transactions, there is hereby
established the National Advisory Council on International Monetary and
Financial Problems (hereinafter referred to as the "Council"), consisting of the
Secretary of the Treasury, as chairman, the Secretary of State, the Secretary
of Commerce, the Chairman of the Board of Governors of the Federal Reserve
System, and the Chairman of the Board of Trustees of the Export-Import Bank
of Washington.
(b) (1) The Council, after consultation with the representatives of the
United States on the Fund and the Bank, shall recommend to the President
general policy directives for the guidance of the representatives of the United
States on the Fund and the Bank.
(2) The Council shall advise and consult with the President and the representatives of the United States on the Fund and the Bank on major problems
arising in the administration of the Fund and the Bank.
(3) The Council shall coordinate, by consultation or otherwise, so far as is
practicable, the policies and operations of the representatives of the United
States on the Fund and the Bank, the Export-Import Bank of Washington, and
all other agencies of the Government to the extent that they make or participate
in the making of foreign loans or engaged in foreign financial, exchange, or
monetary transactions.
(4) Whenever, under the Articles of Agreement of the Fund or the Articles
of Agreement of the Bank, the approval, consent, or agreement of the United
States is required before an act may be done by the respective institutions, the
decision as to whether such approval, consent, or agreement, shall be given
or refused shall (to the extent such decision is not prohibited by section 5 of
this act) be made by the Council, under the general direction of the President.
No governor, executive director, or alternate representing the United States
shall vote in favor of any waiver of condition under article V, section 4, or in
favor of any declaration of the United States dollar as a scarce currency under
article VII, section 3, of the Articles of Agreement of the Fund, without prior
approval of the Council.
(5) The Council from time to time, but not less frequently than every six
months, shall transmit to the President and to the Congress a report with respect to the participation of the United States in the Fund and the Bank.
(6) The Council shall also transmit to the President and to the Congress
special reports on the operations and policies of the Fund and the Bank, as
provided in this paragraph. The first report shall be made not later than two
years after the establishment of the Fund and the Bank, and a report shall be
made every two years after the making of the first report. Each such report
shall cover and include: The extent to which the Fund and the Bank have
achieved the purposes for which they were established; the extent to which the
operations and policies of the Fund and the Bank have adhered to, or departed
from, the general policy directives formulated by the Council, and the Council's recommendations in connection therewith; the extent to which the operations and policies of the Fund and the Bank have been coordinated, and the
Council's recommendations in connection therewith; recommendations on whether
the resources of the Fund and the Bank should be increased or decreased; recommendations as to how the Fund and the Bank may be made more effective;
recommendations on any other necessary or desirable changes in the Articles of
Agreement of the Fund and of the Bank or in this Act; and an over-all appraisal




BRETTON WOODS AGREEMENTS ACT

3

of the extent to which the operations and policies of the Fund and the Bank have
served, and in the future may be expected to serve, the interests of the United
States and the world in promoting sound international economic cooperation and
furthering world security.
(7) The Council shall make such reports and recommendations to the President as he may from time to time request, or as the Council may consider necessary to more effectively or efficiently accomplish the purposes of this Act or the
purposes for which the Council is created.
(c) The representatives of the United States on the Fund and the Bank, and
the Export-Import Bank of Washington (and all other agencies of the Government to the extent that they make or participate in the making of foreign loans
or engage in foreign financial, exchange or monetary transactions) shall keep
the Council fully informed of their activities and shall provide the Council with
such further information or data in their possession as the Council may deem
necessary to the appropriate discharge of its responsibilities under this Act.
CERTAIN ACTS NOT TO BE TAKEN WITHOUT AUTHORIZATION

SEC. 5. Unless Congress by law authorizes such action, neither the President
nor any person or agency shall on behalf of the United States (a) request or
consent to any change in the quota of the United States under article III, section 2, of the Articles of Agreement of the Fund; (b) propose or agree to any
change in the par value of the United States dollar under article IV, section 5,
or article XX, section 4, of the Articles of Agreement of the Fund, or approve
any general change in par values under article IV, section 7; (c) subscribe
to additional shares of stock under article II, section 3, of the Articles of Agreement of the Bank; (d) accept any amendment under article XVII of the Articles of Agreement of the Fund or article VIII of the Articles of Agreement of
the Bank; (e) make any loan to the Fund or the Bank. Unless Congress by
law authorizes such action, no governor or alternate appointed to represent the
United States shall vote for an increase of capital stock of the Bank under
article II, section 2, of the Articles of Agreement of the Bank.
PAR VALUE OF UNITED STATES DOLLAR

SEC. 6. When the United States is requested by the Fund to communicate
the par value of the United States dollar, such par value shall not be communicated as other than 15?2i grains of gold nine-tenths fine.
DEPOSITORIES

SEC. 7. Any Federal Reserve bank which is requested to do so by the Fund
or the Bank shall act as its depository or as its fiscal agent, and the Board
of Governors of the Federal Reserve System shall supervise and direct the
carrying out of these functions by the Federal Reserve banks.
PAYMENT OF SUBSCRIPTIONS

SEC. 8. (a) Subsection (c) of section 10 of the Gold Reserve Act of 1934, as
amended (U. S: C, title 31, sec. 822a), is amended to read as follows :
"(c) The Secretary of the Treasury is directed to use $1,800,000,000 of the
fund established in this section to pay part of the subscription of the United
States to the International Monetary Fund; and any repayment thereof shall
be covered into the Treasury as a miscellaneous receipt."
(b) The Secretary of the Treasury is authorized to pay the balance of $950,000,000 of the subscription of. the United States to the Fund not provided for in
subsection (a) and to pay the subscription of the United States to the Bank
from time to time when payments are required to be made to the Bank. For
the purpose of making these payments, the Secretary of the Treasury is authorized to use as a public-debt transaction not to exceed $4,125,000,000 of the proceeds of any securities hereafter issued under the Second Liberty Bond Act, as
amended, and the purposes for which securities may be issued under that ACT
are extended to include such purpose. Payment under this subsection of the
subscription of the United States to the Fund or the Bank and repayments
thereof shall be treated as public-debt transactions of the United States.
(c) For the purpose of keeping to a minimum the cost to the United States of
participation in the Fund and the Bank, the Secretary of the Treasury, after




4

BRETTON WOODS AGREEMENTS ACT

paying the subscription of the United States to the Fund, and any part of the
subscription of the United States to the Bank required to be made under article II,
section 7 (i), of the Articles of Agreement of the Bank, is authorized and directed
to issue special notes of the United States from time to time at par and to deliver
such notes to the Fund and the Bank in exchange for dollars to the extent permitted by the respective Articles of Agreement. The special notes provided for in
this subsection shall be issued under the authority and subject to the provisions
of the Second Liberty Bond Act, as amended, and the purposes for which securities
may be issued under that Act are extended to include the purposes for which
special notes are authorized and directed to be issued under this subsection, but
such notes shall bear no interest, shall be nonnegotiable, and shall be payable on
demand of the Fund or the Bank, as the case may be. The face amount of special
notes issued to the Fund under the authority of this subsection and outstanding
at any one time shall not exceed in the aggregate the amount of the subscription
of the United States actually paid to the Fund, and the face amount of such notes
issued to the Bank and outstanding at any one time shall not exceed in the'
aggregate the amount of the subscription of the United States actually paid to the
Bank under article II, section 7 (i), of the Articles of Agreement of the Bank.
(d) Any payment made to the United States by the Fund or the Bank as a
distribution of net income shall be covered into the Treasury as a miscellaneous
receipt.
OBTAINING AND FURNISHING INFORMATION

SEC. 9. (a) Whenever a request is made by the Fund to the United States as
a member to furnish data under article VIII, section 5, of the Articles of Agreement of the Fund, the President may, through any agency he may designate,
require any person to furnish such information as the President may determine
to be essential to comply with such request. In making such determination the
President shall seek to collect the information only in such detail as is necessary
to comply with the request of the Fund. No information so acquired shall be
furnished to the Fund in such detail that the affairs of any person are disclosed.
(b) In the event any person refuses to furnish such information when requested
to do so, the President, through any designated governmental agency, may by
subpena require such person to appear and testify or to appear and produce
records and other documents, or both. In case of contumacy by, or refusal to
obey a subpena served upon any such person, the district court for any district
in which such person is found or resides or transacts business, upon application
by the President or any governmental agency designated by him, shall have
jurisdiction to issue an order requiring such person to appear and give testimony
or appear and produce records and documents, or both; and any failure to obey
such order of the court may be punished by such court as a contempt thereof.
(c) It shall be unlawful for any officer or employees of the Government, or
for any adviser or consultant to the Government, to disclose, otherwise than in
the course of official duty, any information obtained under this section, or to use
any such information for his personal benefit. Whoever violates any of the
provisions of this subsection shall, upon conviction, be fined not more than
$5,000, or imprisoned for not more than five years, or both.
(d) The term "person" as used in this section means an individual, partnership, corporation, or association.
FINANCIAL TRANSACTIONS WITH FOREIGN GOVERNMENTS IN DEFAULT

SEC. 10. The Act entitled "An Act to prohibit financial transactions with any
foreign government in default on its obligations to the United States," approved
April 13, 1934 (U. S. C, title 31, sec. 804a), is amended by adding at the end
thereof a new section to read as follows :
"SEC. 3. While any foreign government is a member both of the International
Monetary Fund and of the International Bank for Reconstruction and Developmet[Development],this Act shall not apply to the sale or purchase of bonds, securities, or
obligations of such government or any political subdivision thereof or of any
organization or association acting for or on behalf of such government or political
subdivision, or to the making of any loan to such government, political subdivision, organization, or association."




BRETTON WOODS AGREEMENTS ACT

5

JURISDICTION AND VENUE OF ACTIONS

SEC. 11. For the purpose of any action which may be brought within the United
States or its Territories or possessions by or against the Fund or the Bank in
accordance with the articles of agreement of the Fund or the articles of agreement of the Bank, the Fund or the Bank, as the case may be, shall be deemed to be
an inhabitant of the Federal judicial district in which its principal office in the
United States is located, and any such action at law or in equity to which either
the Fund or the Bank shall be a party shall be deemed to arise under the laws
of the United States, and the district courts of the United States shall have
original jurisdiction of any such action. When either the Fund or the Bank is
a defendant in any such action, it may, at any time before the trial thereof,
remove such action from a State court into the district court of the United States
for the proper district by following the procedure for removal of causes otherwise provided by law.
STATUS, IMMUNITIES,, AND PRIVILEGES

SEC. 12. The provisions of article IX, sections 2 to 9, both inclusive, and the
first sentence of article VIII, section 2 (b), of the Articles of Agreement of the
Fund, and the provisions of article VI, section 5 (i), and article VII, sections
2 to 9, both inclusive, of the Articles of Agreement of the Bank, shall have full
force and effect in the United States and its Territories and possessions upon
acceptance of membership by the United States in, and the establishment of,
the Fund and the Bank, respectively.
STABILIZATION LOANS BY THE BANK

SEC. 13. The governor and executive director of the Bank. appointed by the
United States are hereby directed to obtain promptly an official interpretation by
the Bank as to its authority to make or guarantee loans for programs of economic reconstruction and the reconstruction of monetary systems, including longterm stabilization loans. If the Bank does not interpret its powers to include
the making or guaranteeing of such loans, the governor of the Bank representing the United States is hereby directed to propose promptly and support an
amendment to the Articles of Agreement for the purpose of explicitly authorizing
the Bank, after consultation with the Fund, to make or guarantee such loans.
The President is hereby authorized and directed to accept an amendment to
that effect on behalf of the United States.
STABILIZATION OPERATIONS BY THE FUND

SEC. 14. (a) The governor and executive director of the Fund appointed by
the United States are hereby directed to obtain promptly an official interpretation by the Fund as to (i) whether its authority to use its resources extends
beyond current monetary stabilization operations to afford temporary assistance
to members in connection with seasonal, cyclical, and emergency fluctuations in
the balance of payments of any member for current transactions, and (ii)
whether it has authority to use its resources to provide facilities for relief or reconstruction or to meet a large or sustained outflow of capital on the part of any
member.
(b) If the interpretation by the Fund answers in the affirmative either of the
questions stated in subsection (a), the governor of the Fund representing the
United States is hereby directed to propose promptly and support an amendment
to the Articles of Agreement for the purpose of expressly negativing such interpretation. The President is hereby authorized and directed to accept an amendment to that effect on behalf of the United States.
Passed the House of Representatives June 7, 1945.
SOUTH TRIMBLE,
Clerk.
By H. NEWLIN MEGILL.

The CHAIRMAN. Mr. Secretary, Senator Tobey and I had the honor
of having been delegates to the Bretton Woods Conference, and be-




6

BRETTON WOODS AGREEMENTS ACT

cause you were the head of our delegation we will be delighted to hear
from you as our first witness on the legislation now before us. I t
was introduced jointly by Senator Tobey and myself in the Senate.
STATEMENT OP HON. HENRY MORGENTHAU, JR., SECRETARY OF
THE TREASURY, WASHINGTON, D. C.

Mr. MORGENTHAU. Mr. Chairman and members of the committee,
when I appeared before the House Committee on Banking and Currency to discuss this legislation, I told the committee that in my
opinion, "the Bretton Woods agreements are good for every American citizen" and that "the program we are advocating is definitely
good business for the United States."
In that statement I discussed the importance of Bretton Woods to
world trade. Before the war we were the largest exporting nation
in the world. We needed exports to maintain jobs, to absorb part of
the output of American factories and farms. We were also a large
importer, the second largest in the world. We needed imported raw
materials for our industries and scores of imported products to meet
the everyday demands of our consumers.
After the war we will have even more reason for exporting and
importing, for expanding trade. To make this possible the producing and trading power of many countries must be restored and developed ; the currency restrictions and discrimination that stifle trade
must be relaxed and removed. And that, in substance, is what
the Bretton Woods proposals are about.
I want to emphasize another aspect of the Bretton Woods agreements no less important to American business—that of establishing
a world in which international trade and international investment
can be carried on by businessmen on business principles.
You cannot do business in an environment of disorderly currencies.
Carl Wynne, president of the Chicago Exporters Club, told the House
committee that arbitrary exchange practices make it difficult to import or export without taking risks that are too big for the ordinary
businessman.
As you know, during the 1930's a number of countries began to use
their currency systems for the purpose of securing unfair advantages
in international trade. Germany in particular- developed numerous
devices for exploiting her creditors and competitors. The use of these
tricks by Germany forced other countries to adopt similar measures
in self-defense. The result was an era of currency warfare that virtually destroyed international trade and investment and prepared the
way for total war.
American businessmen have demonstrated that they are more than
willing to take their chances in fair competition with the businessmen of any country. All they ask is an opportunity to sell a better
product at a better price. But they cannot trade if the marks or the
pesetas they, collect for their automobiles and their movies are arbitrarily changed in value, or cannot be sold for dollars.
That is what happened to many American companies when they
sold goods to Germany. They could either take blocked marks or
some commodity that Germany was willing to offer in payment. The




BRETTON WOODS AGREEMENTS ACT

7

American commercial attache in Berlin reported that one company
had to take 8,000,000 mouth organs in payment for petroleum, a n other 200,000 canaries for a large press for making automobile bodies,
and a movie company was bamboozled into taking a live hippopotamus
for its films.
This was only one of the many currency tricks widely used in the
1930's. Germany had more* than 35 different kinds of marks, some
selling at discounts up to 50 percent. She had about 40 bilateral clearing agreements under which exports to Germany were paid for only if
the country took German imports. This country could not and would
not do business on that basis.
I should add that this country was the principal victim of these
unfair currency practices. Between 1928 and 1938 the value of our
exports fell by nearly one-half while world trade fell by one-third.
We know a country cannot always keep the same export markets. But
we believe that changes in trade among countries should result from
productive efficiency, not from exchange restrictions.
With such currency practices as these, international trade and investment can no longer be conducted along business lines. They become a matter of international politics, and they may become an
international racket.
Orue might suppose that when nazism is destroyed, its strong-arm
currency practices will be destroyed, too. But this will not necessarily
happen. Many countries had to adopt similar measures in self-defense.
They still have them. And now, as these countries look on their shelled,
bombed, and pillaged lands, as they contemplate the difficulties of
reconstruction, there is real danger that they may be tempted to continue and to extend these practices.
If we do nothing to help establish orderly exchanges, to help these
countries get foreign capital for reconstruction, they will feel compelled to revert to barter deals, clearing agreements, competitive
exchange depreciation, and multiple currencies. And these devices
will be used with greater ingenuity and with greater effectiveness
than ever before.
Rebuilding and restoring the devastated countries, as I see it, is primarily a job for their domestic industries. Certain basic essentials,
however, will have to be imported. These include transportation
equipment and industrial and agricultural machinery. If private investors abroad will not lend the necessary capital on reasonable terms,
countries will be forced to seek help in other ways. Foreign loans
might then be arranged on a political basis. This could only mean the
rule of power politics in international economic relations.
I repeat, the businessmen of this country do not want to do business
that way. The extension of these tactics must mean in the end the
domination of international trade and investment by governments.
This country has the greatest interest in seeing that international trade
and investment are determined by economic and not by political considerations.
We in the Treasury have been aware of these dangers. In 1941, we
began to work on postwar currency and investment problems. We
prepared a tentative proposal for a world fund to set fair currency
rules and to help countries abide by these rules. We also prepared a




8

BRETTON WOODS AGREEMENTS ACT

tentative proposal for a world bank to encourage private investors
to make sound and productive foreign loans, the risks to be shared by
all countries.
Our discussions showed that other countries were convinced our
proposals offered a practical basis for the solution of common monetary
and financial problems. That conviction explains the cooperative
spirit at the Bretton Woods Conference. All the 44 countries were determined to protect their own interests—the United States no less
than others—yet all were aware that their own well-being depends
on international cooperation. On some points national differences had
to be reconciled; and I may add that Senator Wagner and Senator
Tobey, both delegates to the Conference, rendered conspicuous service
in this delicate task.
Personally, I take pride in the fact that in spite of all the obstacles
and pitfalls, we did get an agreement on the basis of the proposals
submitted by this Government. We had to compromise—of course
we did—that is the democratic way. But it is one thing to compromise on details, on procedures; and it is quite another to compromise
on fundamental principles. That is where we drew the line.
One aspect of the Bretton Woods agreements deserves special
emphasis—their relation to peace. Peace is more than a political
problem. It is a complicated structure that can be built only upon
the solid foundation of economic order and prosperity in all countries.
Peace and prosperity are two sides of the same problem. We cannot neglect one without endangering the other.
We all know how horrible war can be, and we are all determined
to do everything possible to prevent these horrors from happening
ogain. But you and I know that if peace is to endure there must
be jobs, there must be hope of economic betterment. Otherwise, men
f ali easy victim to the rabble rouser, to the quack with a dangerous
nostrum.
It is much the same with nations as with men. In either case
scuffling, pushing, and shoving soon lead to blows. And when blows
are struck in a crowd, there is likely to be work for the police riot
squad.
There was no riot squad on duty to prevent World War II. There
were no rules of the game to prevent pushing and shoving; and the
economic scuffling of the 1930's developed the gangsters who finally
discarded their economic blackjacks and brass knuckles in favor of
the tanks and bombs that bathed Europe, and most of the world, in
blood.
International monetary and financial problems have been a source
of conflict for a generation. We must see that after this war they
do not become the basis for new conflicts. That will be possible
if international trade and investment are put on a business rather
than a political basis. In my opinion, the Bretton Woods proposals
give us the opportunity to decide whether international trade and
investment will be carried on through private enterprise on the basis
of fair currency rules or through governments on the basis of bilateral
agreements.
International cooperation is a continuing and difficult task. But
we are making progress. The over-all job of building a world
security organization is being worked out at San Francisco. Despite



BRETTON WOODS AGREEMENTS ACT

9

the obstacles to final agreement, the Conference nevertheless moves
on. It will succeed because the people of all countries insist that it
must succeed.
The fact that at Bretton Woods we were able to get representatives
of 44 nations to agree on proposals for a monetary and financialT program is evidence that with care, patience, and understanding, w e can
get agreement on all international problems.
The people of this country have shown that they are eager to have
our Government take the leadership in dealing with international
economic and political problems. There is no difference of opinion
among Americans, no partisan division in Congress on this policy.
Action by this committee approving the Bretton Woods agreements
will be an inspiration to war-weary and hungry people everywhere,
to people who have faith that the United Nations can and will work
together to bring about a better world.
The CHAIRMAN. Thank you very much, Mr. Secretary. That was
a very fine statement and I am in agreement with every word of it.
Mr. MORGENTHAU. Thank you, sir.
The CHAIRMAN. I say that as one of the members of the delegation.
Mr. MORGENTHAU. Thank you.
Senator HICKENLOOPER. Considering the reference to Senators
Wagner and Tobey, I would say it was an especially fine statement.
The CHAIRMAN. Thank you very much, Mr. Secretary. We will
now hear Mr. Acheson.
Senator TAFT. Mr. Chairman, may I ask the Secretary a few questions ?
The CHAIRMAN. Certainly. I beg your pardon.
Senator TAFT. I do not suppose the Secretary wants to go into details and therefore that he will have others from the Department to
do that.
Mr. MORGENTHAU. Yes, sir.
Senator TAFT. But I should

like to ask the Secretary a few general
questions.
Mr. MORGENTHAU. All right.
Senator TAFT. I should like to know what other American money
will come into this picture. Let us suppose the Japanese war would
come to an end within 30 days, we will say, what are our commitments
on lend-lease, and otherwise, if there are any such commitments outside of the Bretton Woods agreements ?
Mr. MORGENTHAU. I am asking Mr. Acheson to sit next to me as he
might be helpful in making any answers.
Senator TAFT. That is all right. I have in mind, for instance, the
French agreement and the Dutch agreement, and whatever there may
be in the way of an agreement with Britain, and so forth; what would
we be obligated for? I do not suppose it is an absolute obligation,
but, for instance, how much would we be expected to furnish the
British under lend-lease if VJ-day should come now ?
Mr. MORGENTHAU. May Mr. Acheson answer that question?
Senator TAFT. Yes.
Mr. ACHESON. There are the three agreements to which you referred—the French, the Belgian, and the Dutch. There is also, not
an agreement, but a general program with the British. So far as



10

BRETTON WOODS AGREEMENTS ACT

the British program is concerned, you make it difficult to answer by
saying "suppose VJ-day came in 30 days." The British program is
one which carries on from VE-day to VJ-day. If VJ-day should
come within 30 days then that program will come to an end. But,
I take it, it is not at all likely VJ-day will come in 30 days.
Senator TAFT. NO ; but I was trying to get an idea of the general
situation. For instance, there is a civilian population in England
as contrasted to the absolute war set-up in the Far East.
Mr. ACHESON.. There is nothing in the British program to carry on
after VJ-day. I presume it would come during a period when ships
are at sea, and until some arrangement could be made to divert the
whole flow, which is in considerable volume, that would go on, but
that would be a very short time. But so far as lend-lease is concerned,
or to more directly answer your question, so far as the British part
of lend-lease is concerned, there is no plan looking beyond VJ-day.
And inasmuch as you have mentioned the French, Belgian, and Dutch
agreements, I will answer that the French agreement looked forward
to a program running to the middle of 1946. That will probably be
revised so that it will become simply a program for the year 1945, and
that will also be true of the Belgian and Dutch programs.
Senator TAFT. AS I recall it, originally the French program altogether ran to about 2y2 billion dollars.
Mr. ACHE-ON. Yes. But that would be cut down to slightly more
than half if it were to run to the end of this year. Both of these
programs are based on the proposition that we have 5,000,000 or more
men in those areas, and that they have to be redeployed; that a tremendous burden is placed upon the whole transportation and productive systems of those three countries, and therefore we will allow
lend-lease to run along until we get our people out of those areas
and take that burden off of them.
Senator TAFT. I take it the first things that are going to the
French are machines, equipment, and so forth.
Mr. ACHESON. There is a provision in both agreements that at any
time the President determines it is not absolutely essential for our
own purposes, these agreements go on a repayment basis, so that
we would be repaid at any time the President wishes to put that
into effect.
Senator TAFT. Then those would become in the nature of loans.
Mr. ACHESON. Yes.
Senator TAFT. They

would probably be turned from lend-lease into
loans.
Mr. ACHESON. That is correct.
Senator TAFT. Would something of the same sort be done with
the British in case of VJ-day ?
Mr. ACHESON. There is no plan that I know of in contemplation
or in existence about that.
Senator TAFT. Can you tell us whether Mr. Hopkins promised
Russia anything in the way of continued lend-lease?
Mr. ACHESON. I cannot, because I do not know.
Senator TAFT. When did Mr. Hopkins get back?
Mr. ACHESON. I understand from the radio announcement that he
is to get back todav.
Senator TAFT. Well, Mr. Chairman, if that information is available I think we ought to have it. For instance, as to how much the



BRETTON WOODS AGREEMENTS ACT

H

loan to Russia is to be, whether made through lend-lease or by means
of any other negotiation Mr. Hopkins has had.
Mr. MORGENTHAU. I might add that I am not aware that subject
entered into the conversations.
The CHAIRMAN. DO you mean the conversations Mr. Hopkins has
had with representatives of Soviet Russia ?
Mr. MORGENTHAU. Yes. I have not been advised that any question
of loans was a part of the conversations.
Senator TAFT. IS any lend-lease going to Russia today ?
Mr. MORGENTHAU. Yes. Is not that so, Mr. Acheson ?
Mr. ACHESON. Yes; there is, Senator Taft.
Senator TAFT. Have you any idea of the volume or scope of it ?
Mr. ACHESON. YOU see, there was an announcement a month or so
ago, right after VE-day, that
Senator TAFT. There were two or three announcements and they
seemed to contradict each other. I want to know what is actually
happening.
Mr. ACHESON. I only know of the two announcements; one put out
by the Acting Secretary and one by the Secretary. I do not think
they contradicted each other. The idea of it was that such lendlease as was going forward would be in connection with the prosecution of the war, and that we were reviewing all requests of the Soviet
Union for lend-lease to see whether or not they would contribute to
the actual prosecution of the war.
Senator TAFT. It was going forward at the rate of $100,000,000 a
month, was it not ?
Mr. ACHESON. Well, I should think not, but I could not definitely
answer that question offhand. I would have to get the figures for you
if they are available.
Senator TAFT. The general purpose of these Bretton Woods agreements is to put up $8,000,000,000 of our money, along with money from
various other nations, to loan to countries that need it. I think it important for the whole picture that we know how much is going to
those countries by other methods than the Bretton Woods agreements.
Mr. ACHESON. AS I understand the situation at the present time, so
far as the Soviet Union is concerned, lend-lease is not being used for
the purpose you have in mind.
Senator TAFT. At any rate I think we are entitled to know the kinds
of things that are going to Russia to the end that we may properly
evaluate the legislation we are considering here. I think, Mr. Chairman, we ought to have a list of the kinds of things that are going to
Russia, and approximately in what volume. And I think we ought
to have the same information as to the Belgians, the Dutch, and the
British, because nearly all of it, as I see the picture, is distinctly postwar reconstruction. I think we ought to have a list of the things
that are going forward, so we may judge whether they are really for
war or are for postwar reconstruction.
Mr. ACHESON. I think in the last report of the Lend-Lease Administration you have that brought up to the 31st of March.
Senator TAFT. The reports of the Lend-Lease Administration are
very much in the nature of propaganda. We do not get information in detail. For instance, they never give the exact kind of things
going to France, Britain, and so on. It is all lumped together, accompanied by pictures, and they do not furnish anything in detail. I
75673—45




2

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BRETTON WOODS AGREEMENTS ACT

think we ought to have a list of the lend-lease, and anything else, going now to European countries where there is no war today, and approximately the volume in which it is going. I think we ought to
have that information, and must have it before we can pass intelligently upon how much of the Bretton Woods agreements is needed.
The CHAIRMAN. I am sure the Secretary of the Treasury will give
us that information.
Mr. MORGENTHAU. Surely.
(The information referred to appears on p. 450.)
Senator TAFT. Very well. That is an entirely satisfactory response.
Now, there is one other question: What about the recommendations
that have been in the offing for the Export-Import Bank of Washington. Can you tell us, Mr. Secretary, what legislation the Government is going to ask for the Export-Import Bank of Washington ?
Mr. MORGENTHAU. The most recent information, or I will say conversation was one I had yesterday with Mr. Clayton. I understand
from Mr. Clayton that they will shortly introduce a bill in the House
pertaining to the Export-Import Bank.
Senator TAFT. The present capital of that bank I believe is $700,000 000.
Mr. MORGENTHAU. Yes, sir.
Senator TAFT. Will that be increased

to $2,200,000,000 or something
of that kind %
Mr. MORGENTHAU. That figure has not yet been settled in the executive branch of the Government. It is under discussion now.
Senator TAFT. But that bill will probably be introduced before this
committee passes on this legislation.
Mr. MORGENTHAU. From the conversation I had with Mr. Clayton
1 think it will be introduced tomorrow.
Senator TAFT. IS the Export-Import Bank going to make loans
directly to governments only, or in some cases to others?
Mr. MORGENTHAU. AS you probably noticed, I was conferring with
Mr. Acheson just to be sure that my information was accurate. They
could make loans directly to governments, but the normal process is
to underwrite American exporters and importers.
Senator TAFT. I understand you to denounce direct loans in your
prepared statement. You say:
International monetary and financial problems have been a source of conflict
for a generation. We must see that after this war they do not become the
basis for new conflicts. That will be possible if international trade and investment are put on a business rather than a political basis.

Again you say:
The Bretton Woods proposals give us the opportunity to decide whether international trade and investment will be carried on through private enterprise on
the basis of fair currency rules or through governments on the basis of bilateral
agreements.

Is not that just what the Export-Import Bank is going to do, make
bilateral agreements that will carry on this trade ?
Mr. MORGENTHAU. But that is with reference ,to some of the shorter
loans, loans for from 3 to 5 years, we will say, that the ExportImport Bank would participate in those. But with loans running
from 20 years to 30 years for public utilities, that require a long time
to repay, those would be conducted by the world bank.
Senator TOBEY. IS it not a fact when the House Committee on Banking and Currency considered this bill Mr. Wolcott, the ranking mi


BRETTON WOODS AGREEMENTS ACT

13

nority member, spoke of the Export-Import Bank and recommended
an increase "for the prime purpose of a distinction between short-term
and long-term loans over there ?
Mr. MORGENTHAU. That is quite correct.
Senator TAFT. DO I understand that the Export-Import Bank is to
be limited to short-term loans ?
Mr. MORGENTHAU. That is my understanding.
Mr. ACHESON. Not altogether.
Mr. MORGENTHAU. Will you let Mr. Acheson answer that question ?
Senator TOBEY. Their loans wTould be short term in comparison with
loans for, say, 40 or 50 years ?
Mr. ACHESON. Yes, sir; shorter than that.
Senator TOBEY. There is a distinction between the two ?
Mr. ACHESON. Yes, sir.
Senator TAFT. I S it not

possible that we can use that power for
making loans on a political basis, and that that will encourage other
nations to make loans on a political basis also ?
Mr. ACHESON. The Secretary has asked me to take up there.
Senator TAFT. All right.
Mr. ACHESON. The comparable bilateral arrangements to which I
think you refer, Senator Taft, are those by which you channel trade
between two countries. In other words, barter arrangements. That
is not the purpose of Export-Import Bank loans.
Senator TAFT. YOU say "foreign loans might then be arranged on
a political basis. This could only mean the rule of power politics
in international economic relations." I take it with the Export-Import Bank it is all right for us to engage in power politics but it is
not all right for other people to do so. Or do you think we are so
noble we won't so engage in power politics ?
Mr. MORGENTHAU. I do not think that refers to the same thing.
Senator BUTLER. Mr. Chairman, in connection with the request made
by Senator Taft for a list of the articles that are being furnished by
us under lend-lease to various European countries, I would like especially for the principal items of food and the amounts thereof to be
indicated in such a statement.
The CHAIRMAN. All right.
Senator BUTLER. Mr. Secretary, on page 2 of your statement you
say:
Between 1928 and 1938 the value of our exports fell by nearly one-half, while
world trade fell by one-third.

Did not the Reciprocal Trade Act become effective in 1934?
Mr. MORGENTHAU. If you say it did, I am sure that is right.
Senator BUTLER. I am quite certain it became effective in 1934.
Mr. MORGENTHAU. Yes, sir; I am so informed.
Senator BUTLER. I wonder what kind of explanation you can make
on the fact that our export and import business would drop more
rapidly than that of other countries of the world at a time when we put
into effect the Reciprocal Trade Act.
Mr. MORGENTHAU. In the first place, I was referring to the years
prior to the time when the reciprocal trade agreement went into effect;
and when it did go into effect we could not negotiate very promptly all
trade agreements. I have some facts on that if you care to hear them.
Senator BUTLER. All right.



14

BRETTON WOODS AGREEMENTS ACT

Mr. MORGENTHAU. During the past 11 years reciprocal trade agreements have been concluded with 28 countries, including 8 out of 10
of our best customers. That is for 65 percent of our trade. Our exports to trade-agreement countries rose by 63 percent, and to nonagreement countries only 32 percent, from 1934 to 1938. Our imports
from trade-agreement countries increased by 22 percent, and from
nonagreement countries only 13 percent.
Senator BUTLER. But the fact remains that the foreign trade of
other countries rose more rapidly.
Mr. MORGENTHAU. That was prior to 1934.
The CHAIRMAN. Any other questions?
Senator FULBRIGHT. With particular respect to the statement on
page 3:
This country has the greatest interest in seeing that international trade and
investment are determined by economic and not by political considerations.

It occurred to me that before the war we did business with such
countries as Japan and Spain without any regard to political considerations. It does not seem to me that in the future we can isolate
the economic from the political; and in stating several times that this
must be done on an economic basis without regard to politics, that is
not quite correct.
Mr. MORGENTHAU. The discussion at Bretton Woods
Senator FULBRIGHT. IS not this a part of the political international
arrangement? In other words, let us assume we are not going to
have an international organization, in the political field would you
say this particular scheme should go forward?
Mr. MORGENTHAU. Senator Fulbright, the discussion at Bretton
Woods was based on the economic needs of a country and not on the
political needs. And the thought all through the discussions was, particularly as affecting the small countries, such as Greece, Czechoslovakia
Senator FULBRIGHT. And the Argentine and Spain.
Mr. MORGENTHAU. I did not put them in.
Senator FULBRIGHT. But you will be faced by that situation, is what
I mean.
Mr. MORGENTHAU. I can only report to you—and the two American
delegates that are sitting here at this committee table can either affirm
or deny what happened—but the thought was
The CHAIRMAN. I have just checked with Senator Tobey, and neither
one of us heard any politics at all at Bretton Woods.
Mr. MORGENTHAU. The thought was that those countries could come
to a world bank or a world fund and get their financial needs taken
care of without having to sell their political souls. And that was
the whole idea. I am sorry, Senator Fulbright, but I would not be
honest if I did not stick by my guns on that, and that is my conception
of Bretton Woods. These are to be financial institutions run by financial people, financial experts, and the needs in a financial way of a
country are to be taken care of wholly independent of the political
connection.
Senator FULBRIGHT. Then if this country has no foreign policy and
blunders along as it did for the last 20 years, you would go ahead and
finance, say, the Argentine, regardless of what you thought it would
do, and the same as to any other country.



BRETTON WOODS AGREEMENTS ACT

15

Mr. MORGENTHAU. YOU put me in an embarrassing position, but I
will have to answer.
Senator FULBRIGHT. I do not mean to embarrass you, but do want
to know what the idea is.
Mr. MORGENTHAU. I understand. But I will go through with it:
If the Argentine was a member of the bank and the fund, and she
needed certain financial help to meet her requirements, being a member
her requirements are to be taken care of independent of her political
ideology. I choked on it, but I went through with it.
Senator FULBRIGHT. It seems to me that is going pretty far, and I
do not quite agree that that is a sound policy.
Mr. MORGENTHAU. That is in the record, too.
Senator FULBRIGHT. It would seem to me that it means the fund will
have no relationship to the State Department. But let us assume the
State Department does develop some consistent policy in foreign relations, I cannot help but believe that our financial policy should be
subservient to the political policy as established in the State Department. It does not seem proper that our various relationships with
other countries should be conducted entirely separate from and without
any regard to other relations.
Mr. MORGENTHAU. I would rather not answer that on the record.
(Thereupon there was discussion off the record.)
Senator TAFT. I should like to know how you can say their requirements will be taken care of regardless of what may be done by others.
Mr. MORGENTHAU. I do not know about that.
Senator TAFT. We have only 27 percent of the votes in the fund,
and 30 percent in the bank. Or it is somewhere between 27 percent
and 34 percent. How can you say what will happen? Suppose
Russia should violently object to a loan to the Argentine, do you
think the board would have the right to go over their head ?
Mr. MORGENTHAU. All that I was trying to say, Senator Taft, was
the spirit evidenced at Bretton Woods in regard to how the bank and
the fund should function. All the discussion was on the economic and
financial requirements of those countries. And, as Chairman Wagner
has said here, at no time was a question raised as to the political
ideology of a country.
Senator TAFT. DO you think when a board is set up, composed of
the great nations and the small nations of the world, they are not
going to be affected by politics about the making of a loan to a nation ?
Mr. MORGENTHAU. I am repeating myself on this, but the institutions will carry out their work as far as it is humanly possible to
do it—and it depends on the people running it—on a strictly business
basis.
Senator TAFT. We may be as noble as we are pleased to hope we
will be, but what justification is there for the theory that the English,
the Eussians, and other people will take that position ?^ Aren't they
going to use any weapon they have for their purposes in Europe ?
Mr. MORGENTHAU. Gentlemen, I hope you will believe I am very
sincere. I think in these things like Bretton Woods we have to
assume the nations of the world have learned something while going
through this bloody war we are just emerging from in Europe, and
that we have the right to assume as between nations there is going
to be a new conception of dealings one with another. If there is not,
the world is lost.



16

BRETTON WOODS AGREEMENTS ACT

Senator TAFT. I certainly would be glad to be able to join you in
that hope. But I think it hard to imagine having an international
body of this sort free from politics resorted to by people sitting on
the board.
Senator FULBRIGHT. I don't see why it should be. I think politics
is not such a disreputable thing that it cannot be accepted in this or
any other international organization, if by politics is meant some
regard for the best interest of one's own country. Take the best
example, Japan; I don't see why we should not have taken account
of what she w^as doing in the way of trade before the war. Apparently politics didn't enter into it at all. It was a strictly commercial
proposition. If they could afford to pay for scrap metal we would
sell it to them. That seems to me to be a very stupid policy.
Mr. MORGENTHAU. I happen to agree with you, but I am only
Secretary of the Treasury.
Senator FULBRIGHT. This statement, I assume to be represented by
not only your own view, but that of the administration.
Mr. MORGENTHAU. That is correct.
Senator FULBRIGHT. Therefore, *I don't think the administration
should say we are not going to have any consideration for politics
in various countries. It seems to me to be perfectly proper to say,
"Yes, we are, but we are going to try to be intelligent about it." That
does not mean we are going to try to control Europe's internal politics. That is quite different from saying that all the internal affairs
of a country is of no interest to us, which seems to me also rather
stupid.
Senator TOBEY. Mr. Secretary of the Treasury, I would like to read
here from the agreements, article IV, section 10:
Political activity prohibited. The bank and its officers shall not interfere in
the political affairs of any member; nor shall they be influenced in their decisions by the political character of the members concerned. Only economic
considerations shall be relevant to their decisions, and their considerations shall
be weighed impartially in order to achieve the purposes stated in article I.
Senator TAFT. Mr. Secretary, may I ask one more question ?
Mr. MORGENTHAU. Please.
Senator TAFT. YOU say that foreign loans might be arranged on a

political basis. Of course, there is nothing to prevent other countries
making any foreign lo'ans they please, I assume. You say:
If private investors abroad will not lend the necessary capital on reasonable
terms, countries will be forced to seek help in other ways. Foreign loans might
then be arranged on a political basis. This could only mean the rule of power
politics in international economic relations. I. repeat, the businessmen of this
country do not want to do business that way. The extension of these tactics
must be in the end the domination of international trade and investment by
governments.

I do not quite see why the establishment of the fund and the bank
do not mean the domination of international trade and investments
by governments.
Mr. MORGENTHAU. Well, what was meant by that statement, Senator, and I can see where it could be misunderstood, is that, lacking the
bank and the fund, loans would be negotiated between governments
for strictly political considerations. I mean these smaller countries
desiring loans would have to go and call on their more powerful neighbors, and the governments would work out their needs as they have in



BRETTON WOODS AGREEMENTS ACT

17

the past, their financial needs being a small consideration as compared with their political needs.
Senator TAFT. I don't see why a small nation cannot go, anyway,
to the bankers and others and other governments and ask for loans,
but what seems to me clear is that you set up a bank like this; it is
the bank that is going to decide whether Rumania gets a loan that
perhaps Russia will want, or w7hether Spain will get a loan that perhaps England wants. It seems to me that the bank has more power
and there is more opportunity for the domination of international
trade and investment by governments through the setting up of these
organizations than if they wrere never set up.
Senator TOBEY. Don't you think the distinction is this
Senator TAFT. Don't you think the Secretary might answer the
questions ?
Senator TOBEY. Well, I thought maybe I could help him, but there
is a difference. We do not propose under this agreement to carry on
international trade and investments. We propose to stimulate international trade and investments. There is quite a distinction. It is
the difference between being entrepreneurs of international trade and
of trying to stimulate an international trade. That is what we seek to
accomplish.
Mr. MORGENTHAU. I accept your answer if Senator Taft does.
Senator TAFT. It seems to me that by this bill your bank is going
to have the power to decide whether this country is developed or
whether that country is developed, whether this country can successfully trade or that country can successfully trade.
After all, the amount of this fund is going to be pretty limited.
You are going to have to pick and choose. I think they can just
dominate international trade through their control of loans just the
way we are charging that the bankers and Wall Street are dominating trade in the United States. That has been the charge that
has been made for years. I don't see how this is going to be very
different.
Mr. MORGENTHAU. I would have given anything if you had been
writh us at Bretton Woods. It would have been most helpful.
Senator TAFT. I think you would have regretted it in the end.
Senator TOBEY. I think he would have been a changed Robert Taft.
Mr. MORGENTHAU. I say it would have been helpful because to have
gone through that conference there for 3 weeks and seen the approach
that the various representatives of governments made to this proposition was almost like a religious revival, and I repeat myself when I
say that we have to have a new conception of dealings between governments. I think what happened there at Bretton Woods certainly
gave me the impression and belief that we have fought this war for
something. If we cannot go on in a new faith and a new confidence
as between governments, well, then all that has been happening in
the last 5 years is just a tragedy. I think if you had been there you
would have felt this spirit which honestly existed. I can only say
that Senator Wagner and Senator Tobey, who were there, could
probably express it better than I could.
Senator TAFT. I cannot argue the question of religious revival with
the Secretary. However, there is one other question I would like to
ask. That is, the question of the general purpose of this is to in


18

BRETTON WOODS AGREEMENTS ACT

crease international trade. Is the purpose affected by the fact that
Japan and Germany are practically out of international trade ? Didn't
they have a very large volume of international trade before the war?
Mr. MORGENTHAU. NO. That is a general misunderstanding, if
you don't mind my saying it. I haven't the figures here, but Germany's trade was in a limited number of articles. I would be glad
to furnish those statistics, but continental Europe can so easily pick
up Germany's export and import trade that the disappearance of
it will never be noticed.
Senator TAFT. Well, it seeems to me—I don't know—I have no particular view as to what ought to be done with Germany or Japan, but
it seems, as far as I can see, from the ideas that are current, that
whatever increase we might get in international trade b}^ this and
other means is going to be more than balanced by what we lose in international trade figures after completely eliminating Germany and
Japan.
In other words, we say we have to make these people prosperous so
they can buy our goods, but in Germany we say that we must make
them absolutely flat so that they cannot buy our goods. It seems to
me the two policies are practically contradictory.
Mr. MORGENTHAU. If Germany is to be deindustrialized, as I hope
she will, and made self-sufficient for food, clothing, and the simple
requirements needed to maintain the people on a basis of a standard
of living not to exceed that of her neighbors, all of the studies which
we have made show that her former position in world trade, in the
export and import fields, could so readily be absorbed by just continental Europe, not including England, that it never will be missed.
Senator TAFT. I cannot see how you can take 150,000,000 people
of the most highly industrialized nations in the world, or among the
most highly industrialized nations in the world, and just bar them
out from all international trade without substantially contradicting
and to a large extent nullifying any good that may come from the other
agreements. I cannot understand how you can do more than hope to
adjust and make that up.
Mr. MORGENTHAU. If you had the time to spend an afternoon or an
evening I would be very glad to come to your office and put all these
figures before you.
Germany's trade before the war and the eliminating of those possibilities afterward-—eliminating her as an exporter and importer.
I would be very glad to come down and go into the thing to just as
great a length as Senator Taft desires.
Senator FULBRIGHT. Your views about Germany, with which I
agree—isn't that a political consideration that induced you to that position ? It seems to me that is an example of a political consideration
that is perfectly proper.
Mr. MORGENTHAU. I was trying to give Senator Taft as intelligent
an answer as I could.
Senator FULBRIGHT. I thought it was an intelligent answer, and I
say I agree with you. It seems to me it is in the nature of a political
consideration, or that it is somewhat inspired by political considerations.




BRETTON WOODS AGREEMENTS ACT

19

Mr. MORGENTHAU. Well, I think it is more inspired by the desire for
peace in the world.
Senator FULBRIGHT. Well, that is a political consideration. That
is what I mean by a political consideration.
Mr. MORGENTHAU. If that is what you mean I agree with you.
The CHAIRMAN. Are there any further questions of the Secretary?
(There was no response.)
The CHAIRMAN. Thank you very much.
Mr. Acheson, how long do you think you will be ?
Mr. ACHESON. I think about 20 minutes.
The CHAIRMAN. All right. We will be delighted to hear from you,
as we always are.
STATEMENT OF HON. DEAN ACHESON, ASSISTANT SECRETARY OF
STATE, WASHINGTON, D. C.
Mr. ACHESON. Senator Wagner, and members of the committee,
I would like to talk for a few minutes about the general background which calls for institutions such as those which were put forward at Bretton Woods, and then describe briefly some of the provisions and functions of the two institutions. We have been talking
in the last few minutes about these institutions as though they were
just ideas which were put forward in a perfectly normal world, and
the question was whether they could be changed this way or that way
a little bit.
I think it might be well to bring out the actual conditions with
which we are faced in the world, and why we have to have institutions
such a,s the organization being created at San Francisco, the ones
proposed at Bretton Woods, as well as the trade-agreements program,
and other international institutions.
I would like to talk for a moment about Europe, but what I say
about Europe is equally true of the Far East. There is a situation
in the world, very clearly illustrated in Europe, and also true in the
Far East, which threatens the very foundations, the whole fabric of
world organization which we have known in our lifetime and which
our fathers and grandfathers knew.
There are living in western Europe, in the western European allied
countries, more people than live on the North American Continent
from the North Pole to the southern border of Mexico. There are
18O5OOO,OOO people in the countries which are allied with us in western
Europe. That excludes the enemy countries. Those people in the
period before World War I and in the period between World War I
and World War I I were in a very real sense almost the heart of international trade and production. They were the heart in the sense that
the operation of their economic life drew into Europe and pushed out
of Europe the goods w^hich furnished over half of the foreign trade of
the world. That 180 000,000 people imported from overseas—I am
now talking about the international movement of goods—they imported from overseas annually before this war over 140,000 000 tons
of goods, almost a ton per person, which was a great factor in world
trade.
Senator TAFT. Who imported 140,000,000




20

BRETTON WOODS AGREEMENTS ACT

Mr. ACHESON. 140,000,000 tons were imported by 180,000,000 people
in the western European allied countries.
Senator TAFT. Yes.
Mr. ACHESON. Which is nearly a ton a person. We in this country
imported about one-eighth of a ton per person. So you see the relative
importance of the two people so far as world trade is concerned. The
whole organization of life before this last war in the European allied
countries was based on overseas trade. It was essential for their life
and it was essential for the life of a great many other areas of the
world: the Far East, the East Indies, the West Indies, Africa, and
South America.
The raw materials which went into that area of Europe of which
I spoke were turned into manufactured goods and sent out again.
What I want to point out to you is that within a few months after
Hitler crossed the Polish border the entire system of life of that 180,000,000 people was drastically changed. Not one single solitary ton
of goods moved from overseas into that area. It was one of the greatest revolutions that ever occurred in the history of the world.
Not only did that occur, but the Germans organized a system in
Europe which turned Europe in on itself and with perfectly amazing
skill made that system work and work so effectively that the Germans
were able to fight all the rest of the world and support reasonably well
the peoples of Europe.
To do that not only was the direction of trade changed, but all of
the institutions for financing, ownership of property, direction of
industry, direction of transportation systems, all of these were changed
to create a new European order which for 5 years occupied the energies
of those people. It was existence on a lower scale, but it was effective.
Within a few months after D-day, we in turn destroyed Hitler's
system. We destroyed it utterly and completely. The whole European system of production and trade wyas as completely ruined and as
completely set aside as was the earlier system Hitler destroyed.
So, when you come to the day of liberation in Europe you find there
180,000,000 people, excluding former enemy peoples, who are completely flat. You find that the railway systems have ceased to operate;
the power systems have ceased to operate; the financial systems are
destroyed. Ownership of property is in terrific confusion. Management of property is in confusion. Svstems of law have to be changed.
If you want to get an illustration of what happens in the purely
physical fields you can get it from taking a period of 7 months as a
measuring period. Before this war, to take two countries, France and
Belgium, in a period of 7 months imported 29,000,000 tons of goods.
That gives you some measure of the activity of those two countries.
During the existence of the German system, the German period of
occupation, France and Belgium received from the rest of Europe
during a period of 7 months 7,000,000 tons. This was much less than
before, but still a substantial amount. In the 7 months from D-day to
January 1,1945, France and Belgium received from all sources a little
less than 500,000 tons of goods. That gives you a measure of the
problem.
The CHAIRMAN. Was that mainly food ?
Mr. ACHESON. That is everything; whatever they got; food and
railway equipment—whatever else could be brought in. Now, of



BRETTON WOODS AGREEMENTS ACT

21

course, that was a very unusual period because a war war going on. I
cite it to indicate what has happened to the industrial and social life
of Europe. It has come to a complete and total standstill. All stocks
of goods have been used up. There is no coal. The railroads cannot
move. There is no power. The financial systems are in disorder. The
ownership of properties and management of properties all are in disorder. To a very large extent the same thing is true of the Far East.
That is the kind of a world for which institutions have to be provided.
Senator TAFT. Wouldn't shipping do a lot more good than institutions? Isn't the reason they haven't got money is they haven't got
ships ? France has a gold balance in this country.
Mr. ACHESON. Yes, they have gold balances.
Senator TAFT. The only reason they haven't any imports is because
they haven't any ships?
Mr. ACHESON. NO, I think it is more than that. If I may go on,
Senator, I would like to finish what I have to say and come back to
these questions.
What I want to point out to you is that this is not an easy thing,
such as Senator Taft just suggests, but it is something which is striking at the very roots of the production of goods, the transportation of
goods, the furnishing of credit, and the consumption of goods.
What is not at all unlikely to occur if drastic steps are not taken has
occurred once before in history. When things are very close to us they
do not seem to us very important or very significant. When you look
at some similar situations long years back, you see what can happen.
Once before the world was cut in two as our world has been cut in two.
That was at the time of the Moslem conquests in north Africa and the
East. Between 632 and 732 the Moslems split the known world completely in two. They conquered all the provinces of the Persian Empire
and of the Eastern Empire, all of north Africa, all of Spain. They
were finally stopped in France at Poitiers in 732. The Mediterranean,
which had been the connecting link in the then known world, the highway of trade, fell into the hands of the Moslems. What immediately
happened, and what went on for the next thousand years, was that
Europe was turned in on itself. The empire of Charlemagne had to
turn north, toward the North Sea and toward Germany. It was cut
off from the eastern empire, was cut off from world trade. There
being no trade, towns disappeared. There being no towns and no
money, the state disappeared as an institution. There were no treasuries. There were no public works. There w^as no investing. There
was no private industry. There were only two things in Europe to
which Europe could turn at that time and those were land and labor,
and, cut off from the rest of the world, it took Europe a thousand years
to get back to where it had come from before.
Now that you may regard as an overdrawn picture. I assure you it
is not overdrawn at all, and unless the strongest and most vigorous
steps of an institutional character are taken to bring about collective
action and collective security in the economic, political, and monetary
fields, you may very well have a Europe turned in on itself attempting
to organize itself on the basis of the two enduring factors, land and
labor. How would they-go about even attempting to function in the
field of international trade and international finance? They would
have to do it without outside help, by resorting to all the methods which



22

BRETTON WOODS AGREEMENTS ACT

the Secretary of the Treasury has just told you about. They would
have to engage in the most narrow forms of bilateral arrangements,
clearing arrangements, exchange controls, multiple currencies, and
every sort of economic warfare arrangement.
Except for France, the European countries are practically without
foreign exchange or foreign funds of any sort. They would have to
indulge in every kind of a restrictive practice to force their exports
on other people and to get such imports as they vitally needed.
It is in dealing with that situation that the two Bretton Woods
institutions are important and essential. The two institutions are the
fund and the bank. The fund attempts to set up the environment in
which these restrictive practices will be done away with and by which
the monetary mechanism is set up which permits those practices to be
done away with. The bank sets up an institution by which loans can
be made and devastation can be repaired and development can take
place.
Now, the fund, as has been said many times, is a series of promises
and the means by which those promises can be carried out. What the
fund attempts to do is to say to its members. "We ask you to undertake
four promises and we will give you help in carrying out those four
promises. The first promise is that you will define your currency in
terms of gold. In other words, you will define your currencies in such
a way that there will be an established and understandable and fixed
relation between all the currencies of the world, so that they will not
fly, in terms of one another, all over the range of value."
Senator MTTRDOCK. Would you permit a question there?
Mr. ACHESON. Yes,
Senator MURDOCK.

sir.

We have recently found, in this country, that
notwithstanding the fact that we hold, as I recall the figure, about
three-fourths of the monetary gold of the world, that our gold holdings are not sufficient to maintain the 40-percent reserve ratio. We
have found it necessary to recently cut that from 40 percent to 25
percent. I am wondering if the entire gold monetary holdings of the
world are sufficient to adequately base this international monetary
system that is contemplated by the fund.
Mr. ACHESON. Very possibly not, Senator Murdock. If this arrangement contemplated a 40-percent coverage of the currencies of
the world, the answer would be clearly, "No." We do not do that.
Senator MURDOCH. I disregard the 40 percent. I am wondering if
it is sufficient even to maintain it at 25 percent.
Mr. ACHESON. This plan does not contemplate any percentage basis.
What I am talking about is defining their currency in terms of gold,
I am talking about defining them in the terms of a common denominator, so that there is some common denominator that will relate to
the franc, to the pound, to the peso. If currency is defined in terms
of gold then you know what it is in relation to the other currencies.
That is the importance of this fund.
Senator MURDOCK. Then you deem it, as I have followed you, absolutely essential that the currencies of the world be tied to a common
denominator.
Mr. ACHESON. Yes,
Senator TOBEY. Of

sir.

course, what Abe really means is if there is not
sufficient gold there is plenty of silver to augment it.



BRETTON WOODS AGREEMENTS ACT

23

Senator MURDOCK. The distinguished Senator has anticipated my
next question. I am wondering now why, in the face of the fact
historically we have had two methods which have been used as common
denominators throughout history, or, at least for a long period, it is
rather difficult for me to understand, and especially is it so in view
of the present gold situation, which necessitates our reduction of gold
reserves, why we do not in this fund set up, that we are about to establish internationally, bring into the picture the other metallic money
which has been used down through history and which is in presentday use by hundreds of millions of people.
Of course I have in mind silver* and I hope that as the discussion
proceeds that someone familiar with the situation and sponsoring this
great international organization, or organizations, will tell me why
we dont5 facilitate those institutions by using not only gold, but whatever silver is necessary to supplement the lack of it. I don't ask the
present witness to do that, but I hope that someone along in the discussion will do that for me. I am sure that other members of the
committee might be interested.
Senator MILLIKIN. I should like the honor of joining you in that
request, or that hope.
Senator MURDOCK. I am always honored to have the Senator from
Colorado associated with me, and I hope that somebody will tell us
that before the discussions are ended.
Mr. ACHESON. I am sure somebody will, Senator Murdock and Senator Millikin. It is clearly not within my field or not within my
knowledge so that I cannot do that.
Senator TAFT. DO you think this is a system based on gold or any
other metal, Mr. Acheson?
Mr. ACHESON. I was trying to point out to Senators Murdock and
Millikin what we are talking about here is defining currencies in
terms of gold, not the use of gold as a cover or a basis of currencies.
Senator TAFT. Well, I recall reading a statement somewhere by Mr.
Keynes in which he said he was just the opposite of the gold standard,
which I took to mean that it was purely a managed paper-money
currency that was contemplated under the fund.
Mr. ACHESON. Can we leave that until we get the situation before
us a little bit?- It seems to me those are just questions of words, questions of how you want to describe something or how you want to
stress various important factors of it.
The CHAIRMAN. We will have a witness that will deal with the subject of gold and silver.
Mr. ACHESON. Yes; I am sure you will.
In answer to this matter Senator Taft has brought out, the British
like to say that this is a departure from the gold standard. We like
to say that this resembles the gold standard. Neither one of us has
any differences as to what the plan provides. We differ in the words
we like to use about it. I don't think a debate throws much light on
the question. It is merely a way of presenting it to people, but the
' important factors I want to bring out are that the first thing that the
fund asks its members to do is to define their currencies in terms of
gold. Having done that the funds asks them to do the next thing
which is to maintain their currencies within 1 percent, up or down, of
that defined value.



24

'

BRETTON WOODS AGREEMENTS ACT

The fund then has currencies which are related to one another in the
terms of a common denominator, currencies which are held at that
relationship. It is clear that in all cases you cannot hold the currencies at that relationship so the fund goes on to its third promise,
which is that if a change in the value of currency is contemplated by
any country it will consult with the fund.
In other words, a change in the value of currency is a matter of
international concern and is not purely a matter of unilateral concern. Members are asked to come and consult if they wish to make
a change. When they consult, under an agreement which gives them
a right to make a change that is within 10 percent, they must consult
first. They must hear the arguments of the other fellow. They must
be able to define what they want to do. They must subject it to criticism, but if the change is within 10 percent they have a right to do it
without the fund's consent.
Senator TAFT. YOU mean they can depreciate their currency 10 percent whether the rest of the world agrees to it or not ?
Mr. ACHESON. That is right, after they consult, after they hear
arguments, and after they have a discussion about it.
Senator BANKHEAD. HOW many times can they depreciafe it?
Mr. ACHESON. Only once; it must be within the 10 percent. Once
you go beyond that then the second consideration comes into effect.
If the change is more than 10 percent then the fund has to say whether
it agrees or disagrees. It may agree. If it agrees, all right. The
change can be made. If it disagrees and if the member persists in
changing the value of his currency, then either the member may be
expelled from the fund or his dealings with the fund may be suspended
or curtailed, or the fund may take such action as it wishes.
Senator TAFT. With one important exception, Mr. Acheson, which
I think nullifies the whole statement. I read from article IV, section 5 (f) :
The fund shall concur in a proposed change which is within the terms of C-II
or C-III above if it is satisfied that the change is necessary to correct a fundamental disequilibrium. In particular, provided it is so satirfhd. it shall not
object to a proposed change because of the domestic, social, or political policies
of the member proposing the change.

In other words, it can only do so if it is satisfied—
in particular, provided it is so satisfied, it shall not object to a proposed change
because of the domestic, social, or political policies of the member proposing the
change.

So, all a fellow has to do is to say, "We are going to run an unbalanced budget," and immediately yoii are forbidden to object to a further devaluation of his currency; isn't that correct?
Mr. ACHESON. NO; that is not correct, Senator Taft, and I will tell
you in a moment why not.
Senator MILLIKIN. Mr. Secretary, may I ask you a question ?
Mr. ACHESON. On the same point as Senator Taft's question ?
Senator MILLIKIN. NO ; it is not.
Mr. ACHESON. Perhaps I had better answer Senator Taft's question
first, then. I thought you had one on the same point.
The provision you read, Senator Taft, is not in any sense whatever
an instruction to the fund that in considering a request for a change
it shall agree to the request. If it is necessary to correct a fundamental disequilibrium, in other words, if the value of the currency has



BRETTON WOODS AGREEMENTS ACT

25

been fixed at a point which cannot be maintained because costs have
increased in the country or because they made a wrong guess, or whatever reason it may be, and if therefore it is necessary in order to correct that unbalanced situation that the currency be revalued, then the
fund must agree to it. Obviously it must. It would make no sense
not to. The agreement goes on to say that, in considering hat question, the fund shall not object because of the social or political policies
of a country.
•
The reason for that is very clear. The reason for th it is that countries which wish to have a social security system or whatever systems
they wish, are entitled to have those systems, but if those systems
affect their internal conditions so that costs do increase and the value
of their currency is then thrown out of relation with other currencies,
that is a disequilibrium which must be corrected.
There are only two ways in the world to deal with :hat. Suppose
Great Britain wishes to have the Beveridge system. Great Britain is
not going to subject the Beveridge scheme to the veto of any other
country in the world. And neither would we if we wished to push
our social security system further. We would insist on the right to
do it. There cannot be any international system that says you cannot do that if the nation wishes to do it.
Suppose doing that does increase your costs in your country and
you are therefore at a disadvantage in the foreign markets of the
world, and a change in the value of your currency is nee essary. There
are only two ways of dealing with that situation. One of them is to
say we will make the change because costs are higher in the country
and nobody is injured by the change. It merely pits the country
back in the position it was before the change. There h no harm done
to any other country in the world. That is one way of dealing with
it and that is*the way the fund proposes to do it.
The other idea is that held by the extreme advocates of the gold
system prior to World War I, who felt that there was something fundamentally wrong and wicked in changing the value o:: your currency
and therefore that nation which wishes to go forwarc. with a socialsecurity system must lose its foreign markets; must rave unemployment at home; must have all its business and industrial organizations
going through the wringer, finally having a great fall in prices and
then regaining its foreign markets. That method is a method which
the nations of the world will not tolerate. Maybe they should. Maybe it is wrong, but the facts of life are that they wor.'t stand for it.
That is what this provision deals with.
Senator TAFT. May I state, as I understand it, in the first place,
one of the purposes of this whole thing is to protect peDple from competitive devaluation of their money.
Mr. ACHESON. That is correct.
Senator TAFT. When we come to the actual provisions in the first
place they can depreciate it 10 percent without anyboc.y objecting?
Mr. ACHESON. Yes.
Senator TAFT. Secondly,

they may depreciate it if it doesn't exceed
a further 10 percent, but in that case the fund may either concur or
object, but shall declare its attitude within 72 hours if the members
so request. In the third place—•
if the proposed change is not within I or II above, the fund n a y either concur
or object, but shall be entitled to a longer period in which to declare its attitude.



26

BRETTON WOODS AGREEMENTS ACT

That is, they may depreciate it 50 percent and the fund may either
concur or object, but shall be entitled to a longer period in which to
declare its attitude.
Now, on top of all that, on the question of how effective this is, it
says—•
The fund shall concur in a proposed change if it is satisfied that the change
is necessary to correct a fundamental disequilibrium. In particular, provided
it is so satisfied, it shall not object to a proposed change because of the domestic,
social, or political policies of the member proposing the change.

Well, we can say that no substantial fundamental disequilibrium
has ever occurred in any nation except as a result of its social or
political policies. By putting that in there the fund is barred from
objecting to any devaluation of the currency. I don't think there is
anything that can be pointed to that is not a result of the social or
political policy of the member proposing the change. They may put
up tariffs. They may refuse to take any imports. They may adopt
any policy they want to that throws them out of balance and the fund
immediately is barred from objecting to devaluation of their currency.
Mr. ACHESON. NO; there is a most complete and absolute non
sequitur in your statement, Snator Taft, which is that because you
cannot object to something on account of social and political considerations, therefore you cannot object to any devaluation. Now, that
is a complete and total non sequitur.
Senator TAFT. I say any request for a 50-percent devaluation is
bound to be a result of social and political policies that they do not
want to change.
Mr. ACHESON. If there is a fundamental disequilibrium, in other
words, if whatever the nation has done has brought about a situation
where it must change its currency to remain in the same position it
was before, no one in the w^orld is injured by that change.
Senator TAFT. But it doesn't prevent one of the big purposes of the
fund itself here, to prevent devaluation of currencies. It absolutely
permits any devaluation of a currency in any nation as a practical
matter.
Mr. ACHESON. YOU just keep on saying the same thing. It is not
true at all.
Senator TAFT. Well, I can read English. That is what it says.
Mr. ACHESON. The purpose of the fund is not to prevent any devaluation. It is to prevent competitive devaluation. It is to prevent
countries from getting advantages by devaluating. It is not to prevent
countries from readjusting difficulties so that after the readjustment
their currency has actually the same value as it had before. That is
not the purpose of the fund. We are not setting up some rigid gold
system under which nobody can ever change the value of his currency.
Senator TAFT. Yes; but the fund has no discretion. The whole
question is whether that country has adopted social and political policies that it wants to retain that kave brought about this fundamental
disequilibrium. Of course, that is how all fundamental disequilibriums are brought about.
Mr. ACHESON. Well, wThat of it? Suppose they are brought about
by it. What business is it of ours ?
Senator TAFT. Well, you say the purpose of this thing is to control
that situation, but I cannot see where you will have anything that
you haven't got now after this act goes into effect.



BRETTON WOODS AGREEMENTS ACT

27

Mr. ACHESON. Yes; that is exactly what we will have. What we
want to prevent and, under this act, what we will prevent, is competitive devaluations by which the devaluer gets an unfair advantage.
Senator TAFT. Let me say
Mr. ACHESON. Let me finish.
If the devaluer has undertaken social or political policies which increase his costs, then when he adjusts the value of his currency he is
just exactly where he was before. That is not an unfair practice. We
don't want to prevent it. The fund doesn't prevent it and nobody is
injured by it.
Senator TAFT. YOU spoke of competitive devaluation. Isn't that
bound to happen? Suppose France devalues 10 percent. Immediately Belgium devalues 10 percent. That 10 percent devaluation goes
on until you get every country actually devaluing 10 percent except
our country. Then we come along and under section 7 we change the
value of the gold standard so that the whole thing is washed out.
Then the thing begins over again with another 10 percent. That is
just on the 10 percent provision, without all the rest of it I have been
talking about.
Mr. ACHESON. What you continually overlook, Senator Taft, is that
we are not permitting and not contemplating arbitrary reductions
Senator TAFT. YOU permit a 10 percent arbitrary reduction.
Mr. ACHESON. YOU have one area
Senator MURDOCK. I am very much interested in getting your answer
to this question, and I hope you are allowed to answer before you are
interfered with again.
Mr. ACHESON. YOU have one area of 10 percent within which a
nation has a right to change the value of its currency. Everything
has a historical basis and the historical basis for that is the experience
of the British in the twenties. In the twenties the British went back
to a 4.86 pound. The British believed that the troubles which they
got into after that came from the fact that they guessed wrong. They
believe that they should have put the pound back at a figure 10 percent lower, and that unemployment and all their troubles followed
from adhering to the wrong value of the pound. So the British are
absolutely and fundamentally convinced that you cannot look forward
and pick out the exact bull's-eye at which your currency should be.
They believe that there must be a latitude of 10 percent to correct a
bad guess. That is what the fund provision is in there for. It only
permits one devaluation of 10 percent, and it is only within that area
that a nation has a right to change the value of its currencies.
Now, if everybody was ill-disposed, and if everyone wanted to do
just as evil things as he could and did what Senator Taft suggests—
that is, devalued 10 percent—the things Senator Taft contemplates
would happen. I don't think people will do these things; but, at any
rate, that might occur if everyone acted from the lowest possible
motives and tried to cause harm.
After the first 10 percent valuation, then further devaluations must
be the result of a real change in the position of the nation. You cannot pull a change out of the blue sky and say, "I want to devalue 10
or 15 or 20 percent just because that will give me an advantage over
my competitors." You must show that what is happening in your
country makes your cost bear such a relation to other people's costs,
that to get back where you were you must make a change in your
75673—45




3

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BRETTON WOODS AGREEMENTS ACT

currency. The fund will agree to those changes if they are necessary.
That is the purpose of the fund. You cannot say to them, "Well, you
must change your social-security system." The British were in that
situation once before and they don't like it. They say, "We are not
going to stand for it again." They should not be required to and
they won't do it. But that doesn't mean at all what Senator Taft
s,ays that those requirements of the agreement mean. It does not
mean that-anybody may do anything he likes and call it the result of
social and political measures. You must show that there is a fundamental disequilibrium and the extent of it.
Senator RADCLIFFE. Show to whom, Mr. Acheson ?
Mr. ACHESON. TO the fund.
Senator RADCLIFFE. SO that the fund has the decision, not the devaluer ?
Mr. ACHESON. That is right.
Senator TAFT. If England wants to change and we cannot avoid
their change, it is decided by a majority of the board vote, is it?
Mr. ACHESON. By a majority of the total votes; yes.
The CHAIRMAN. The Senators have to be on the floor now.
Mr. Secretary, can you be here at 10: 30 tomorrow ?
Mr. ACHESON. Yes, sir.
The CHAIRMAN. This hearing

will be adjourned until 10: 30. The
committee will meet at 10:15. We have another matter to consider
outside of this.
(Thereupon, at 12:15 p. m., an adjournment was taken until tomorrow, Wednesday, June 13,1945, at 10: 30 a. m.)




BKETTON WOODS AGREEMENTS ACT
WEDNESDAY, JUNE 13, 1945
UNITED STATES SENATE,
COMMITTEE ON BANKING AND CURRENCY,

Washington, D. 0.
The committee met at 10:30 a. m., pursuant to adjournment on
Tuesday, June 12, 1945, in room 301, Senate Office Building, Senator
Kobert F. Wagner (chairman) presiding.
Present: Senators Wagner (chairman), Barkley, Bankhead, Downey, Fulbright, Mitchell, Tobey, Taft, Butler, Buck, and Millikin.
The CHAIRMAN. The committee will come to order, and we will
have the pleasure of hearing again from the distinguished Under
Secretary of State.
Mr. ACHESON. Assistant Secretary. You promoted me.
The CHAIRMAN; Well, I would like to. Will you continue now ?
STATEMENT OF DEAN ACHESON, ASSISTANT SECRETARY OF STATE,
WASHINGTON, D. C,—Resumed
Mr. ACHESON. Yesterday we were discussing the principles to which
members of the fund were asked to agree before the machinery of the
fund went into operation to help them keep these agreements. The
first one was the one of defining their currencies in terms of a common
denominator, gold. The second principle, is that having defined their
currencies, they were to maintain them within 1 percent of the defined
value. The third principle was that if they wished to change the defined value of their currency, they were to consult with the fund.
They had a right to change once within 10 percent, and thereafter
the fund could express its agreement or disagreement. If the fund
disagreed to a change, then the member could be asked to withdraw or
its operations with the fund could be suspended or curtailed.
I think at the close of the last session we were discussing the reasons
for the change as of right within 10 percent. Why does the agreement permit members to change their currency once in all time within
10 percent? The reason for that, I think we were explaining, was
that all of these countries who we hope are to become members of the
fund have been off a fixed relation with gold for some 15 years, and
during that time they have had the great changes brought about by the
depression and the great changes brought about by the war. They
will now be asked to define their currencies precisely in terms of gold.
It would be quite unlikely they could get that definition exactly
right on the first attempt. Therefore, they are given an opportunity
and a right to modify the definition within a range of 10 percent up
or down, but only once. They can only do that once.



29

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BRETTON WOODS AGREEMENTS ACT

Senator BUCK. In what period of years ?
Mr. ACHESON. There is no fixed period of time. They can take as
long as they need, Senator Buck.
Senator TAFT. That means you have to regulate every exchange
transaction in the United States in order to see it does not vary.
In other words, you are fixing the price of all the foreign money
permanently; is that correct ?
Mr. ACHESON. No; I do not think you have to regulate every transaction. I think the transactions will regulate themselves when the
monetary authorities dealing in the currencies define the value.
Senator TAFT. I suggest you have to regulate the thing, and that
nobody can ever sell foreign currencies to the United States except
under the most complete regimentation and price fixing and control
by a national body rather than an international body; isn't that
correct ?
Mr. ACHESON. I would think that is not correct, Senator Taft.
The mechanics, I think Dr. White can explain better than I can,
but the principle seems to me perfectly clear that if you have the
Government of the United States and the fund itself dealing in
these currencies freely at the defined values, then it is impossible for
human beings to make any money doing it any other way.
Senator TAFT. Supposing a Chinese trader came over here and
offered Chinese dollars, or whatever they are called-^
Mr. ACHESON. Yuan.
Senator TAFT. And offers Chinese yuan—offers 50 percent of the
fixed price here in New York City; that is a crime, I take it. He
is arrested immediately, and you have a black market in Chinese
yuan.
Mr. ACHESON. But the point is: Why would he be doing that when
both the fund and the Government would be dealing in Chinese currency at the fixed rate ?
Senator TAFT. Because the Chinese would have exhausted all further power to send yuan to the fund very quickly, and they want
to sell yuan, and they want to get some dollars. They are willing
to do it at 50 percent. The Chinese are experts in that sort of thing.
I don't mean to say anything derogatory about the Chinese, but they
don't know what a stable currency is.
It seems to me you are imposing here a complete Government
control—something we never have had before—on the price and
purchase and sale of an important commodity, namely, foreign
exchange.
Mr. ACHESON. YOU see, the illustration which you give is one which
is just practically impossible, because if the situation results which
you give as the premise, that they have exhausted their quota in dealing with the fund and people are offering exchange at one-half of
the defined value, obviously the value of the yuan would have to be
redefined.
Senator TAFT. Why would it be ? The general tendency of governments is to absolutely fix the price first and say that everybody that
violates it goes to jail. The OPA doesn't change their prices just
because there is a black market in meat.
Mr. ACHESON. We are not talking about a black market in meat.



BRETTON WOODS AGREEMENTS ACT

31

Senator TAFT. NO ; we are talking about a black market in foreign
currency, which is a lot easier, to conduct than a black market in
meat and more difficult to prevent.
Mr. ACHESON. I think as far as I can go with you, Senator Taft,
is to say that in my opinion that is an impossible situation, because
it would have been corrected by a change in the value of the currency.
Senator TAFT. I don't think that answer is true, Mr. Acheson. It
is not the natural thing to do. What are we doing today? We are
maintaining the price of the franc in France at twice its value and
making our soldiers over there buy at that increased price for every
French product they buy—twice as much as they ought to pay.
Mr. ACHESON. That is the very thing that the fund and this whole
mechanism is designed to correct. The fund will not undertake to
operate in a currency which is so grossly misvalued as the franc is.
We just wouldn't do it.
Senator TAFT. Nevertheless, it is a fixing of the price of foreign
currency in the United States, and you have to pass a law making
it a crime if you deal in foreign currency at any other price.
Mr. ACHESON. That is not true. It just doesn't become true by
your repeating it.
Senator TAFT. Why not?
Mr. ACHESON. Because, in the first place, nobody is required to
maintain a currency which is as absurd as the one you have suggested. You would not have begun with such a currency. You
would not have maintained operations in it. It would be contrary
to the whole purpose of the fund.
Senator TAFT. May I suggest China is a member; has a quota; it
is in the fund today. You are going to agree on a price. Whatever
price you agree on, 6 months after that, that price may well be away
off.
Mr. ACHESON. China is not in the fund today. The fund has not
been established. Nobody can come into the fund until the fund
agrees to the price of the currency. Nobody would agree with the
Chinese on a price such as the present official value. You assume
that everybody does the most stupid possible thing and then that all
these results will follow.
Senator TAFT. This agreement sets up an international body that
fixes the price of foreign currency in the United States and places
every transaction under the law, necessary compliance with the law,
with the penalty of going to jail if you disobey it.
Mr. ACHESON. There is no penalty of going to jail. There is a
provision in the agreement which says that contracts in foreign exchange which are contrary to the provisions of the fund shall not be
enforceable in any of the member countries. I t doesn't say anything
about going to jail or anything else. You simply cannot enforce in
any of the member countries a contract in foreign exchange which
is contrary to the provisions of the fund.
In order for a country to come into the fund it must define its currency in terms of gold, so that you avoid the very situation of fact
that you assume. If the definition is wrong, it can be corrected
within 10 percent. If greater correction is required, you must do it
by agreement with the fund.




32

BRETTON WOODS AGREEMENTS ACT

Senator TAFT. I want to suggest another situation. That is the
provision regarding capital transfers. You will have to, determine,
won't you, in practically every case, whether it is a capital transfer
or a current transfer—whether the exchange transaction is for capital purposes or for current purposes ?
Mr. ACHESON. NO.
Senator TAFT. Why not ?
Mr. ACHESON. Because in

most cases it doesn't make any difference.
You don't care what they are. The only point which you are driving
at, I think, is that the fund says that the members may not come to the
fund for assistance in correcting maladjustments which come from
flights of capital. If the fund so requests, a member from whose country there is a flight of capital must take steps to prevent it. So, if
there is a flight of capital from some country, the fund asks the member to stop that or else they will suspend its dealings with the fund.
If the member does not want to stop it, it does not have to, but it
cannot continue to come to the fund if it does not stop it.
^ Senator TAFT. And in order to determine whether there is a flight
of capital or whether it is a current transaction, you have to examine,
it seems to me, every exchange transaction in that currency and decide
whether it is a transfer of capital or a current transaction.
Mr. ACHESON. The country from which the flight of capital is going
on will take steps to stop it. You won't have to examine every transaction. It is perfectly simple to catch the main items which constitute
a flight of capital. It is not a difficult thing to do.
Senator TAFT. I would like to just read from Lord Keynes' statement on the subject:
Not merely as a feature of the transition but as a permanent arrangement, the
plan accords to every member government the explicit right to control all capital
movements. What used to be a heresy is now endorsed as orthodox. In my own
judgment, countries which avail themselves of this right may find it necessary
to scrutinize all transactions, so as to prevent evasion of capital regulations.
Provided that the innocent current transactions are let through, there is nothing
in the plan to prevent this. In fact, it is encouraged. It follows that our right
to control the domestic capital market is secured on firmer foundations than ever
before and is formally accepted as a part of agreed international arrangements.

The point I want to make is that it seems to me not only is it permitted to the government but, in order to carry out the functions of the
fund, I think they have to control the capital movements and will find
it necessary, as Lord Keynes says, to scrutinize the transaction so as to
prevent the evasion of capital regulations.
Mr. ACHESON. I think you just happen to be wrong about that,
Senator Taft, As Lord Keynes says, it is a right which is given to
the country. It is also something they may be called upon to do if
there is flight of capital and if they still wish to come to the fund.
Senator BARKLEY. DO you suppose there is a possibility that Lord
Keynes objects to this plan because it differs from his own?
Mr. ACHESON. I don't think he objects to it. I think it does differ
from his very widely, but I don't think he has any objection to it.
Senator TAFT. Oh, no. He is all for He likes regulation. He
wants to regulate every capital transaction. That is his philosophy of
government. He wants to regulate every current transaction. He is
enthusiastic about the fund, because it gives him the right to do so.




BRETTON WOODS AGREEMENTS ACT

33

Mr. ACHESON. Going on to the fourth principle, which is that current transactions in currencies shall be free. That is one of the great
principles of the fund agreement, that governments shall not put restrictions upon the right of their citizens to deal currently in their
currencies; that is, to buy goods and pay for them by services.
Senator TAFT. Provided they do it at the fixed price or within 1
percent of the fixed price.
Mr. ACHESON. That they shall not place restrictions on the right of
their citizens to deal in their currencies. That is a provision of the
fund agreement, and that is a very important provision of,the agreement, because that is the provision which does away with the whole
group of exchange controls, clearing arrangements, multiple currencies, and all the methods which have been used between the two wars
and during the wars to regiment and control trade and financial
movements.
Now, it will be pointed out, I am sure, that this principle does not
go into effect immediately upon the going into operation of the fund.
There is a transition period. Obviously there must be, because all of
these countries at the present time have their currencies under rigid
control. They are in considerable difficulties during the war. It
will take them some time to reorganize dealings in their currencies.
Senator TAFT. It will go into effect against us immediately, but
not against everybody else in the world; isn't that the condition ?
Mr. ACHESON. NO ; that is not the condition at all, Senator Taft.
Senator TAFT. Why not?
Mr. ACHESON. Under the fund agreement there is a period of 3
years during which any nation that wishes to may postpone putting
these provisions into operation. It may continue its exchange controls for a period of 3 years. We may, if we wish. Anyone may, if he
wishes. At the end of the 3 years a country then has to report to the
fund whether it wishes to remove these restrictions or not. If it does
not, it is given another 2 years to do it. If it does not do it at the end
of that time, dealings with the fund may be greatly suspended, or
the country may be asked to withdraw.
Senatof TAFT. If I recall, in the first place, it only permits two
things. We have them. Therefore, we can impose them. So the
fund goes into effect against the United States immediately.
Mr. ACHESON. We have a great many restrictions at the present
time.
Senator TAFT. Any that you want to continue ?
Mr. ACHESON. NO.
Senator TAFT. Because

we are not in the position where we are a
debtor country and have to continue them, so we open our exchange
market completelv; is that correct?
Mr. ACHESON. We do as we want to do, as you just said by definition ; just as soon as possible after the war is over, we get rid of these
restrictions. That is what we want to do, and that is what we will do.
Senator TAFT. These nations may not only maintain them, but in
the case of members whose territory has been occupied by the enemy,
they may introduce new restrictions immediately.
Mr. ACHESON. That is correct.




34

BRETTON WOODS AGREEMENTS ACT

Senator TAFT. SO that we may have a lot more restrictions after the
war than before the war under that provision, because nearly all the
countries in Europe have been occupied; isn't that correct?
Mr. ACHESON. Well, nearly all the countries have been occupied.
Whether you will have more restriction after the war than during the
war I think is probably a question.
Senator TAFT. It says this goes on for 3 years. I cannot see the rush
about putting this fund through when none of these things are going
to take place until 3 years after it is set up.
Mr. ACHESON. Of course, that again is one of those associations of
ideas which distract you from the situation. Because you may have
3 years within which to correct something, it does not mean everybody
must take 3 years, and obviously, the existence of the fund and the
help which the fund offers the various countries will bring these
restrictions to a much earlier end than otherwise would be the case.
Senator TAFT. May I read what Lord Keynes says:
What, then, are these major advantages that I hope from the plan to the
advantage of this country? First, it is clearly recognized and agreed that
during the postwar transitional period of uncertain duration we are entitled
to retain any of those wartime restrictions, and special arrangement with the
sterling area and others which are helpful to us, without being open to the
charge of acting contrary to any general engagements into which we have
entered.

So obviously the British intend to make full use of this escape clause.
They are not going to remove any of their relations with the sterling
area, or any other restrictions under the provisions of this agreement.
Isn't that correct?
Mr. ACHESON. I haven't the faintest idea of whether it is correct.
Senator TAFT. Don't you think Lord Keynes guides the policy of the
British Government in the particular field of exchange?
Mr. ACHESON. I would say we don't know what the British Government is going to be until some time next month when they have their
election. Lord Keynes, I presume, would have some influence in any
British Government. What you have read is a statement of Lord
Keynes that the British have a right to do this, and that the right is
very important, and that they should have that right. The British, as
you know, are in an extremely difficult financial position and will be
for some time after the war. They have to exercise the greatest care
and caution in order to get themselves out of it. Other nations are
going to be in the same fix. If you look at this whole situation realistically I think you will see this is a very great constructive step.
Nothing can be done in this world by ordering a group of countries to
do something. You cannot possibly get an agreement between these
countries that on VJ-day every restriction which has been put into
effect before and during the war will be automatically swept aside.
That is just impossible, and to insist upon it is to insist that we shall
make no progress at all.
What we have been able to do is to work out an arrangement here
which meets the absolutely pressing necessities of all of these countries
for a certain amount of leeway in getting on their feet after the war,
and at the same time set up an institution which points the direction
in which we hope that everyone will go and which gives powerful aid
in going in that direction. That seems to me to be a constructive



BRETTON WOODS AGREEMENTS ACT

35

measure, much more so than the suggestion that we throw out the
whole thing because perfection has not been achieved.
Senator TAFT. I am not saying that at all, but you are claiming
that you are removing these restrictions. I say you are not removing
them; that the things claimed for it have been surrendered by these
modifications without costing us less money.
Mr. ACHESON. I don't think I .said what you said I did at all,
Senator Taft. I made it perfectly clear I was pointing out that we
were not removing restrictions immediately; that there was a 3-year
period, with a 2-year additional period during which it could be
accomplished, but the existence of this fund would bring that about
much more speedily than without it. It never would be brought about
without some such institutions as were proposed at Bretton Woods,
and we hoped that the lengths of time mentioned in the agreement
would not be altogether necessary. We hoped it could be done sooner
than the extreme period provided there. That is all I have ever
claimed for it.
Senator TAFT. After this 3 years they report, then they have another 2 years. So they have 5 years after the date on which the fund
begins operation. It says any member shall consult the fund as to
further restrictions. There is nothing about getting rid of it in
5 years.
I notice Lord Keynes says, "There is a period of uncertain duration." Then the fund may if it deems such action necessary in exceptional circumstances make reports to any member that conditions
are favorable for the withdrawal of any particular restriction, but
obviously there will be a majority of the Board who have these restrictions, so I think they certainly will treat with great tenderness
anybody who wants to continue them. I don't see any assurance in
the act you are ever going to get rid of the restrictions.
Mr. ACHESON. Well, you are entitled to take that view of it. There
is no contract signed that on any particular day you will get rid of
them, but, as I say, in a world in which we want to get rid of them,
if anybody can suggest a better way of getting rid of them, that would
be fine. This is the best way anybody has been able to think of.
Senator FULBRIGHT. Couldn't you say that that is true of all of
these international agreements? What we are doing is to create
machinery for doing these things, which, if we have intelligence,
we are going to work out. You cannot guarantee any result.
Mr. ACHESON. That is true.
Senator FULBRIGHT. It is merely machinery through which you
hope to be able to solve the.se questions.
Senator TAFT. What I object to doing is putting up $6,000,000,000
and not getting what we are supposed to get.
Senator FULBRIGHT. Well, the alternative is to do nothing.
Senator TAFT. NO ; the alternative is not to do nothing. The alternative is to make a reasonable agreement rwith Britain and try to
stabilize the pound. If you did that you w ould solve half of your
whole exchange problem. I am willing to loan England money. I
would be glad to have a voluntary and constant permanent commission to consult on exchange problems. I think there ought to be
such a commission. The problem is this: Here is an $8,000,000,000




36

BRETTON WOODS AGREEMENTS ACT

fund. We are putting up $2,750,000,000, more than half of the real
money in the fund, and as far as I can see, with 30 percent voting
power. Isn't that true ?
Mr. ACHESON. Isn't what true?
Senator TAFT. We put up more than half of the real money with
30 percent voting power.
Mr. ACHESON. NO. We have voting power which is directly proportioned to the money which we put up.
Senator TAFT. Have you prepared a list of the nations under these
quotas showing how much gold each one will put up and how much
good currency they will put up, and how much paper money will
be put up ?
Mr. ACHESON. I don't know whether the Treasury has done that.
Mr. WHITE. We will be glad to do that.
Senator TAFT. YOU say you have prepared such a list ?
Mr. WHITE. We have one for our own use. We will be glad to
submit it in such form as will be most helpful to you.
Senator TAFT. Well, mine is just a rough guess at the value of currencies. But as far as I can see, the real money in the fund, the gold
and paper money that will be of any value to us apart from what we
give it, is about $5,000,000,000. We put up about $2,750,000,000. The
other 3 billion of the eight is just so much—it is not exactly waste paper,
it is an obligation on the part of nations to pay who are unable to pay.
Mr. ACHESON. Of course, we can go into that. Your whole attitude
seems to me to be wrong, both from an economic point of view and a
political point of view.
Senator TAFT. NO ; I don't think it is wrong.
Mr. ACHESON. Well, if you will let me finish my sentence, Senator
Taft, I will try to bring out why I think it is wrong. I think it is
wrong from an economic point of view. I think it is also an unfortunate attitude to take in the United States toward other countries to
say that we are putting up the only real money and everybody else is
putting up waste paper. I don't believe that is the way to get on with
economic cooperation. But my point is that what is put in the fund
is currency which can be used to buy things. Each of these currencies
is just as useful as any other currency for the only purpose for which
any currency is any good; that is, to buy something. If no one wants
to buy anything with the currencies, of course, they aren't any good,
but if someone does want to use them and if there is an expanded international trade people will want to use them
Senator TAFT. Oh, you are not being realistic about it at all. For
instance, Greek paper money is worth just exactly the paper it is
written on. It never will be worth any more unless we choose to give
them dollars for it. Otherwise, it isn't worth anything.
Mr. ACHESON. If you want to buy some olive oil in Greece, does
Greek currency have any value, or doesn't it ?
Senator TAFT. Yes.
Mr. ACHESON. Of course.
Senator TAFT. I know, but the net balance of trade in Greece is
such you have no difficulty whatever in buying Greek currency for
nothing, unless you stabilize it, and I think you will still be able to
buy it for half of what you stabilize it at, but putting it in the fund,
it has no value. Nobody will buy it because it is so easy to get.



BRETTON WOODS AGREEMENTS ACT

37

Mr. ACHESON. People will buy it if they need it for the purpose of
trade.
Senator TAFT. I think that is a very unrealistic position, to put
paper money into the fund which is not worth the paper it is written
on, a large amount of it.
Senator TOBET. We have a world that is prostrate. If we are going
to live in it ourselves we have got to make some effort to get it back
on its feet. There has to be an element of faith, an element of confidence somewhere. That is what we are trying to do here. We can
afford to take some chances. I am willing to do it. The risks are
small compared to the benefits that will come from this. The world
is in extremis. We have got to do something.
Senator TAFT. Well, I say that is baloney. It will ruin this country,
that kind of a doctrine. Every cent we give away must come from
the American workingman.
Senator TOBEY. We are not giving anything away. We are making
a contribution
Senator TAFT. YOU say wTe ought to give it away.
Senator TOBEY. NO. I say I am willing to take chances.
Senator BARKLEY. I move that the witness be given a chance to say
a few words and let the committee do its arguing in executive session.
Senator FULBRIGHT. I second the motion.
The CHAIRMAN. Well, it was rather interesting. May we continue
now ?
Senator DOWNEY. Mr. Chairman, may I intervene ? Mr. Secretary,
I understand we in the United States have two-thirds, or maybe even
three-fourths of the gold in the world. Whatever the specific figure
is, it is very great.
Mr. ACHESON. Yes.
Senator DOWNEY. Unless

that gold can be used as a foundation for
international trade it really has no actual value at all, more than its
value for commerce. In putting up a few billions of gold in this great
enterprise we are merely attempting to salvage the value of that gold
itself, if you want to reduce it to some very cheap, sordid outlook. If
you wanted to do that, that gold just isn't worth anything unless it
becomes the foundation of international trade. I just wanted to make
that observation.
Senator TAFT. DO you agree with that, Mr. Acheson ?
Mr. ACHESON. I think basically what the Senator says is right.
Senator TAFT. But practically, isn't what they get not our gold, but
our goods ? Isn't that the necessary result, isn't that the only reason
they want our gold, to buy our goods ?
Senator DOWNEY. TOO bad they didn't have some of our gold to buy
some of our goods in 1930, 1931, and 1932.
Senator TAFT. Well,' that is another argument we haven't got to yet.
Mr. ACHESON. Senator, we could go along here in this dialectical
manner quite a long time, I think, without throwing much light on
the situation.
Senator TAFT. I think we are throwing some light on it.
Mr. ACHESON. What we are trying to do is create some sort of an
international monetary system. There was such a system before World
War I. That system will never come back. There was a system of
economic warfare in currencies between the two wars which was really



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BRETTON WOODS AGREEMENTS ACT

no system. Now, we have created something which goes the greatest
possible distance toward creating an international monetary system
in this world under which there can be international trade, under which
trade can grow, and that is absolutely essential to bring any sort of
order and peace to this world. Now, that is what we have tried to do
here, and that is the basic principle.
Senators may say if they wish that we don't need any system; that
all the United States needs to do is to lend money here and there. In
the long run you will lose by that every time. The only hope there is of
peace is to create a system which will work.
This system, we believe, will work, if as Senator Fulbright says,
it is run with intelligence. It won't work if it is run stupidly, but we
believe it will be run with intelligence. That is the basic thing. All
these other things are side issues and confusing.
Senator TAFT. That is not the basic thing, it seems to me. You
don't mean this fund is going to solve the British currency and financial problem, do you, surely?
Mr. ACHESON. NO ; I don't claim, Senator Taft, that this will solve
all the problems of the world. It will do a great deal to help.
Senator TAFT. Isn't the key to the currency problem the British
situation today?
Mr. ACHESON. NO; there is no key. Everybody is looking for a
trick answer. They think that there is a key which unlocks some
golden door and then you don't have to worry.
Senator TAFT. Oh, I don't mean that. Isn't the most important
thing to stabilize currency for the British to be able to set a figure
for the pound and agree with us and be in position to maintain it, in
some way disposing of their block balances, in some way getting rid
of that constant threat against their currency? The maintenance of
pounds, isn't that the most important currency problem in the world
today?
Mr. ACHESON. N O ; I don't think it is the most important currency
problem at all. It is part of an important currency problem, yes.
This is the old argument about the key currencies again.
Senator TAFT. Exactly.
Mr. ACHESON. I know I never can convince you and you never can
make me back down and say this is all a great big mistake.
Senator TAFT. Well, we can bring out in evidence what your position is. Isn't it true that unless that is done this fund cannot
maintain the value of the pound, unless there is some other solution
of that problem by loans and other arrangements with the British ?
Mr. ACHESON. NO; it doesn't mean at all that it depends on what
the value of the pound is.
Senator BARKLEY. If this organization, this set-up, will make some
contribution to the solution of the financial situation and the stabilization of the pound in Britain and other currencies in other countries,
beyond that it is up to the country to do whatever else is necessary
to complete the circle of its stabilization and survival, but if this
makes any substantial contribution, isn't it worth trying? And leave
it to the other countries, all the other countries, to do whatever else
is necessary to stabilize their own situations beyond what this can do.
Mr. ACHESON. That is correct, Senator? It will make a very great
contribution.



BRETTON WOODS AGREEMENTS ACT

39

Senator BAEKLEY. The fact it may not go the whole distance
Senator TAFT. May I
Senator BARKLEY. I wonder if I could finish a sentence.
The CHAIRMAN. I would like to get an answer from the witness,
too.
Senator BARKLEY. Nobody claims this thing will settle all the
currency problems or the economic problems of any country or our
own, but if it creates a situation where the atmosphere and the
machinery is set up by which progress can be made, it will be easier
for the countries to go the rest of the distance, outside of what this
may do, in order to stabilize world conditions.
Mr. ACHESON. That is right. It is essential for them to have an
orderly financial world in which to take the other steps. Clearly
in countries like Great Britain other things are necessary. There
does have to be some action taken to advance credits to the British
in the intermediate period after the war. There does have to be
some action taken by all of Britain's creditors in the sterling area
in order to fund those debts over a long period, and reduce them,
to make it possible to pay them over many, many years, but all of
those steps are made infinitely easier if you have an orderly international financial world than they would be if there was perfect chaos.
Senator TAFT. May I read what Lord Keynes says about his views
in the English situation and see if you agree with it ?
Third—

This is the third great advantage to Britain:
Third, the wheels of trade are to be oiled by what is, in effect, a great addition
to the world's stock of monetary reserves, distributed, moreover, in a reasonable way. The quotas are not so large as under the Clearing Union, and Lord
Addison drew attention to that, but they are substantial and can be increased
subsequently if the need is shown. The aggregate for the world is put provisionally at 2,500,000,000 pounds. Our own share of this—for ourselves, and the
Crown Colonies, which, I may mention, are treated for all purposes as a part
Of the British monetary system, in itself a useful acknowledgment is 325,000,000,
a sum which may easily double, or more than double, the reserves which we
shall otherwise hold at the end of the transitional period.

He intends to keep it for a while at the end of the transitional
period.
Mr. ACHESON. I think that is a gross misrepresentation of what Lord
Keynes says.
Senator TAFT. Let me finish it. Then you can comment on it.
The separate quotas of the rest of the sterling area will make a further large
addition to this. Who is so confident of the future that he will wish to throw
away so comfortable a supplementary aid in time of trouble?

He refers to this supplementary aid as something that is essential
to really solve the British situation. Then in another place he refers
to this as just temporary, not an iron ration.
The quotas for drawing on the fund's resources are an iron ration to tide
over temporary emergencies of one kind or another.

Now, isn't it clear from that that this is not going to solve the
British problem if he looks at something else as essential, either a
direct loan from us, or some other kind of an arrangement ?
Mr. ACHESON. Well, it is not clear from that, Senator Taft. It is
just clear from the nature of the facts that no one thing is going to



40

BRETTON WOODS AGREEMENTS ACT

solve the British problem. I have said that over and over again. This
is not a panacea. This fund alone will not solve the British problem,
or the French problem, or all the problems of any country, but it will
make a solution of the problems possible.
Senator TAFT. I am just suggesting you are putting the cart before
the horse. That is, the fundamental situation in the world will have
to be settled by other means before this fund can be put to work.
Senator BARKLEY. If it could be set up by other means we would
not be here arguing about that.
Mr. ACHESON. I think that is right.
Senator DOWNEY. We could have starvation and chaos. Those are
the two other possibilities.
Mr. ACHESON. NOW, I think, Senator, I have stated the principles
of the fund which the members were asked to agree to. The mechanism of the fund can probably be explained much better by Dr. White
than it can be by me. I think it is enough to say that the fund is a
reservoir of gold and currencies, a reservoir into which each member
puts a certain amount of his quotp in his own currency, and a certain
amount in gold. From that reservoir countries may purchase currencies which they need in certain amounts and under certain restrictions. Those currencies when purchased are used to take care of temporary difficulties in their balances of payments which may run for
2, 3, 4, 5, 6, or 7 years, and then they repurchase their currencies again
as they recover from those temporary difficulties. Broadly speaking,
that is the whole plan—the mechanism is much more complicated, but
that is the way it works.
There are certain safeguards which I shall mention because it will
probably be said at once that this is merely loaning money to people
who have no credit worthiness at all. There are certain safeguards
which I have jotted down.
First of all, there are safeguards that apply before dealings can
be had with the fund at all. They have to do first with fixing and
agreeing on the par value of the currency; that the fund will not
agree to any par value if that par value would require recourse to
the fund on an unreasonable scale to maintain it. That means that
the fund will not agree on a value for the franc or the yuan, which is
completely out of line with realities and would require recourse to the
fund on too great a scale to maintain it.
There is also another safeguard which is that in the case of occupied countries the fund may agree on a tentative rate and may impose conditions upon dealings with the fund until the condition of
that country becomes clarified and it is possible to agree on a definitive
rate.
In the third place, the fund may postpone exchange transactions
with any members where given exchange transactions might result in
prejudice to other members. That is, if the dealings of anyone with
the fund are likely to put a drain on the fund which would prejudice
other members, the fund may postpone the transaction.
Finally, if a member changes the par value of its currency despite
the objections of the fund, it may be declared ineligible for dealings
with the fund and may be asked to withdraw.
All of those safeguards have to do with the beginning of dealings
with the fund, or termination of dealings, so far as they relate to the



BRETTON WOODS AGREEMENTS ACT

41

par value of the currency, and they are very strong and very substantial safeguards.
Now, there are other safeguards which have to do with operations
that are going along. The fifth in number is that a member cannot
use the fund to meet large outflows of capital, and if it continues to
come to the fund for that purpose it may be declared ineligible. We
were discussing that with Senator Taft a moment ago. Furthermore,
if a member persists in maintaining exchange restrictions after the
fund believes that they are no longer necessary, that is after the
member has come out of its transitional period, again the transactions
may be stopped. Also if a member fails to perform any of its obligations under the fund agreement, it may be declared ineligible.
Then there are a whole series of service charges which Dr. White
will go into at greater length. They are also safeguards against the
abuse of the fund. There are repurchase provisions which he will
explain in more technical detail, but which really mean that members
going to the fund must use their own reserves in the same proportion
that they call on the fund. There are exceptions to that where reserves
of other countries have fallen to a very low level, but the normal
operation is that a country going to the fund must use its own foreign
exchange resources in the same proportion that it uses the fund's.
Then there is a safeguard that the gold value of the currency which
it uses to purchase other currencies must be maintained. Finally,
there is in in article V, section 5, a provision which gives the fund
very great discretion in taking whatever steps are necessary to protect
itself. Whenever the fund is of the opinion that a member is using
the resources of the fund in a manner contrary to the purposes of the
fund, it shall present to the member a report setting forth the views
of the fund and prescribing a suitable time for reply. After presenting
such report the fund may limit the use of its resources by the member.
If no reply to the report is received from the member within the prescribed time, or if the reply received is unsatisfactory, the fund may
continue to limit the member's use of the fund's resources, or may,
after giving reasonable notice to the member, declare it'ineligible to
use the resources of the fund.
Now, that, I submit, gives the fund complete authority to limit the
drawings of a member if it finds that the member is acting contrary
to the purposes for which the fund is set up, and that is very important.
That, Mr. Chairman, I think, is enough from me on the fund. The
bank I believe is pretty clearly understood. If you would like me to
talk about that, I will; otherwise, I shall cease talking.
Senator TAFT. I would like to ask Mr. Acheson some further questions when the other members are through.
Senator FULBRIGHT. I wanted to ask one. I didn't hear—I may have
missed it—a brief description of the way it is organized. I mean, is
there a board of directors, or what is the mechanics of it? If you will
give it just briefly.
Mr. ACHESON. There are two separate entities.
Senator FULBRIGHT. What is the nature of the organization ?
Mr. ACHESON. The nature of the organization appears in article
XII in the articles of agreement. It begins on page 22. Senator Wagner was the American representative on the committee that drew up
those managerial sections and I think he knows all about them. In



42

BRETTON WOODS AGREEMENTS ACT

short, there is a Board of Governors created, with a governor from
each member country.
Senator FULBRIGHT. Each member country. That is what I had forgotten.
Mr. ACHESON. Then there is a group of executive directors, 12 in
number. They are elected or appointed by the countries and that is
the real day-to-day managing group.
Senator FULBRIGHT. That is the real board of directors ?
Mr. ACHESON. That is the real board of directors. The Board of
Governors meets annually and at certain other times, and has certain
reserve powers, which are mentioned on page 22. Those powers must
be exercised only by the large Board of Governors. The smaller group,
the executive directors, are in continuous session. That is a full-time
job. They have a managing director whom they hire. He is not one
of the representatives, and he is the executive operating head of the
bank. The votes which each director casts are the votes of the country which appointed him or elected him.
The United States, and four other countries, each has the right to
appoint an executive director. Our director does not cast 1 vote. He
casts 27,750 votes, I think. That is, he casts one vote for each $100,000
of our quota plus 250; and similarly the British have the right to appoint a director. He casts a number of votes. His would be 13,250.
The Russian director would cast 12,250. The Chinese and the French
also appoint directors. Then there is a provision that if any country,
or if two countries have their currencies used so that the fund has less
of their currency than their quotas, they are given the automatic right
to appoint a director, too. That means countries who are really creditor countries. It is possible that the Canadians would come in under
that, and maybe some other countries whose currency would be used.
Senator FULBRIGHT. An additional director?
Mr. ACHESON. One of twelve, and,that reduces the number to be
elected.
Senator FULBRIGHT. But it stays at 12?
Mr. ACHESON. It is a rather complicated arrangement which I can
go into if you like.
Senator TAFT. AS I understand it, are there four—the United
States, the United Kingdom, China, and France—which elect one
director ?
Mr. ACHESON. There are five: the United States, the United Kingdom, the Soviet Union, China, and France; they will appoint a director.
Senator TAFT. Then there is a list of other nations who appoint
five more. Among those are, of course, eligible, the British Dominions. Certainly one of those five would be another British Dominion,
possibly two more. I suppose, in view of the size of the quotas of
India, Canada, Australia, and South Africa, over a billion dollars,
they probably would be pretty well able to elect two out of the five,
so you have three British members of the board, I rather assume.
Then you get two from South America which are elected separately.
Mr. ACHESON. That is right.
Senator TAFT. But, of course, the proportion is determined not by
the number of directors but by the number of votes which they can
cast; is that correct ?
Mr. ACHESON. That is correct.



BRETTON WOODS AGREEMENTS ACT

43

Senator TAFT. What I want to suggest is this, and it has relation
to your safeguards again. As I see it, this board is controlled by
what you might call the debtor countries. I figure that of the 8,800
votes, or however you figure it, 3,900 come from Europe. That does
not count people who are in the European range. Practically every
country in Europe wants dollars today. In addition to the three
billion nine, there is over a billion of British Dominions, and I notice
that England reserves the right to vote India, at least, and Australia
is rather in the debtor class. I suggest that all of these so-called
safeguard, insofar as they are safeguards of creditor countries, may
not be exercised by the board. We have no right to insist upon their
being exercised. I suggest that when you loan your money, when
you put your money in the hands of a board controlled by debtors,
those debtors are going to be very liberal with debtors. Do you think
that is a fair criticism of the set-up of the fund today?
Mr. ACHESON. Well, I wouldn't like to pass on its fairness. I don't
think it is altogether an accurate criticism. The United States under
the various provisions here will have a vote which ultimately will
probably come up to about 33.
Senator TAFT. 33 percent ?
Mr. ACHESON. 33 percent. It starts out at 27, but as the currency
is used it will go up. The South American countries have votes
which will probably have another 10 percent. Some of those are
likely to be creditor countries.
Senator TAFT. Brazil was no creditor country 8 or 10 years ago.
Mr. ACHESON. But it happens to be true now, and may be for some
time.
Whether the concept of debtor or creditor is going to determine
how they are going to vote is something you may have an opinion on,
as well as I.
Senator TAFT. I suggest that the board of 12 on which we have
only one representative is going to have a moral effect even if the
voting is different. Here 1 American representative with a third
of the voting power and 11 other directors w,ith a majority of the
voting power. It seems to me in the first place he is going to be
talked down and in the second place not have the votes.
Mr. ACHESON. I wouldn't worry very much about that. I think
in a short time you suggested that there would be other British
dominions. Undoubtedly Canada under the provisions would be entitled to have a director. Canada is not going to be a debtor country
and is not going to be talked down. And there will probably be a
Dutch director. And the Dutch, whether Holland is a debtor or
creditor, are going to behave the way we are going to behave. They
are very conservative people and all through this Conference behaved
in a very conservative way and always have and always will in banking matters.
Senator TAFT. I suggest that the Dutch are closely tied into London.
They will do what the British want them to do. And I suggest the
Canadians will do what the British want them to do, in the ultimate
resolution.
Mr. ACHESON. That is your suggestion, as you say. It wouldn't be
my suggestion. I think you are wrong about that. I do not think
that either the Dutch or the Canadians would be overawed by the
75673—45



4

44

BRETTON WOODS AGREEMENTS ACT

British, and I think that the British will be acting as a creditor
nation. They are not going to do anything foolishly. But at any
rate you have——
Senator TAFT. Well, the point I suggest is that all these safeguards are not compulsory safeguards written into the act. They
are things that are in the discretion of this board.
Mr. ACHESON. There cannot be compulsory safeguards, Senator
Taft. I was talking with a banker, for instance, down here at some
meeting which you attended, and we illustrated the point this way.
I said, "suppose you were very ill and not expected to recover, and
you were the president of a great bank, and they said, 'No; we are not
going to tell you who your successor is going to be, but we want you to
write out some things here which will enable him to run this bank as
successfully as you have. I won't tell you who he is; it doesn't make
any difference. You just give us the rules as to how to run this
thing.' " I said, "Would that make your last hours happy?"
And he said, "No. Of course that's crazy."
There are no rules that you write out as to how to run a banking
institution successfully. If there were, bank examiners could do it.
It requires management and intelligence.
Now, if you think that the people who are elected here will not use
intelligence on this thing or will not operate it the way it is supposed
to be operated to be successful, then of course it will be a failure, and
I cannot possibly argue against that.
Senator TAFT. I suggest conditions in the world today are. these:
everybody wants dollars, and a great bulk of the nations are debtor
nations, that their interests are adverse to ours, and yet that we are
handing them our money to dispose of as they wish to dispose of it.
Mr. ACHESON. I don't think we are doing that at all.
Senator TAFT. Well, then I want to suggest one other thing I want
to ask on this thing. You have spoken of a number of safeguards, and
as I see it once you set this fund up there is no safeguard against giving
every country its 25 percent of its quota every year if it asks for it, as a
practical matter, and it has been assumed all the way through here—
Lord Keynes assumes it in this statement I read—that every nation—
Eussia assumes it; that is why they wanted their bigger quota: that
they have a right to walk in and take out 25 percent of their quota
every year in any currency that they wish to ask for. Isn't that it ?
Is there any safeguard against that automatic loan whether they need
it or not ? In other words, that draft, it seems to me, is based purely on
the automatic requirements of this fund, in that it differs from the
bank and has no relation to the need of the people who get it.
Mr. ACHESON. Well, I
Senator TAFT. Isn't that so ?
Mr. ACHESON. NO ; that isn't the least bit so, not the slightest bit so.
I am looking for the very first provision here which says that the only
reason that anyone can come to the fund for any purpose at all is in
response to current need.
I do not have the place. Perhaps Dr. White can give me the number
of that. What is the provision that says that the drawing shall—the
first one ?
Dr. WHITE. YOU can use this article I I I , section 5.
Mr. ACHESON. NO.




BRETTON WOODS AGREEMENTS ACT

45

Dr. WHITE. DO you want that one ?
Mr. ACHESON. NO. It is the very first one here.
Dr. WHITE. That is the important one.
Mr. ACHESON. It says something about need.
Dr. WHITE. Oh.
Senator TAFT. Suppose

you read article V, section 3. It is governed by that.
Mr. ACHESON. Yes. It is section 3. That is the one I was looking
for. It is on page 8 here:
Conditions governing use of the fund's resources. A member shall be entitled
to buy the currency of another member from the fund in exchange for its
own currency subject to the following conditions:

Senator TAFT. "Shall be entitled." I mean that is pretty clear,
that much. What other conditions?
Mr. ACHESON (reading) :
The member desiring to purchase the currency represents that it is presently
needed for making in that currency payments which are consistent with the
provisions of this agreement.

Now, the very first thing that I wanted to bring out is that he must
show that the amounts are presently needed. That does not mean
that anyone has a right to walk into this fund and withdraw 25
percent a year. Nothing could be further from the truth than that
concept. It is only if amounts are presently needed for making payments in the currency of that country that he has any right to come
in at all.
Senator TAFT. That is not what the English says. The English
says only that he has to represent that. It doesn't give the board any
power to question his representation, and the board has no power
to question his representation, Mr. Acheson. And that is the construction and the only reasonable construction to put on the language.
Mr. ACHESON. Well, that may be the construction that you wish to
put on it, Senator Taft.
Senator TAFT. NO. He represents. That is all he needs to do.
And isn't it true that this struggle for quotas in Bretton Woods, from
Russia and England—and England's Lord Keynes' slight disappointment in not getting more—was due to the fact that they wanted that
right to get that money?
Senator FULBRIGHT. It is perfectly obvious that those are the ones
that need it. That is one of the purposes. No use in our wanting a
whole lot of it.
Mr. ACHESON. There is no idea whatever that a person walks in and
goes through the empty formality of saying, "I need this presently
to make a payment," and no one can look into it. That would be too
childishly absurd.
Senator TAFT. Well, Mr. Acheson, it is childishly absurd. It is
the whole basis on which this whole thing has been negotiated with
these countries.
Mr. ACHESON. I assure you that that is not so.
Senator TAFT. Isn't there a special agreement with Russia that they
can get $1,200,000,000 at the rate of $300,000,000 a year now, regardless, because they cannot prove anything; they don't have any exchange? The Government runs the whole works. So all they need



46

BRETTON WOODS AGREEMENTS ACT

to do is to need it in the currency payments that are consistent. All
they say is they want to spend $1,200,000,000. Of course they want to
import it. And wasn't it understood with them that they were to be
specially treated?
Mr. ACHESON. It was not understood by me. I do not know of any
such understanding. I don't believe there was one, if you are asking
me.
Senator TAFT. I am asking you.
Mr. ACHESON. NO.
Senator TAFT. I am

asking you if it is not a fact that there is an
understanding with Russia that they are entitled to draw this $300,000,000 a year out of this thing?
Mr. ACHESON. AS far as concerns any information I have, Senator
Taft, that is not correct.
Senator TOBEY. Where did you get that information ?
The CHAIRMAN. I never heard that either.
Senator TAFT. It has been commonly stated, because the Russian
situation is peculiar. They have no necessarily—they don't have
money in Russia as most other nations do. The whole thing is run by
the Government. They can create through Government control any
situation they want to.
Senator MILLIKIN. Mr. Chairman, I should like to ask a question
or two.
The CHAIRMAN. Yes.
Senator MILLIKIN. IS

Mr. Taft's question true or not correct as to
any amount? B e mentioned the specific amount. Is it
Mr. ACHESON. The same answer would go for all.
Senator MILLIKIN. The same answer would go for anyone?
Mr. ACHESON. Yes. There is no trick in my answer.
Senator MILLIKIN. Are there any special arrangements of any kind
with Russia regarding what it may do with this fund ?
Mr. ACHESON. Not as far as I know.
Senator MILLIKIN. Not as far as you know. What are the currencies at the present time that have reasonably stable international value ?
Mr. ACHESON. That is, I think, too difficult for me. I think I had
better leave that for the Treasury.
Senator MILLIKIN. Well, you would say our own money; would you
not?
Mr. ACHESON. I suppose that most currencies now have or have not
a reasonably stable value depending on whether or not they now have
an excess or a favorable balance such as the Brazilians and others, or
have a stabilization agreement with us. But what they would be I
don't know.
Senator MILLIKIN. Would we not say that our currency has a
reaonably stable international value in relation, we will say, to the
pound ?
Mr. ACHESON. That is right, Senator Millikin.
Senator MILLIKIN. The pound has a reasonably stable international
value, does it not ?
Mr. ACHESON. Well, it is held there now by reason of the restrictions
which have been put on it during the war——
Senator MILLIKIN. Yes.




BRETTON WOODS AGREEMENTS ACT

47

Mr. ACHESON. In dealings between the two Governments. Whether
it would have a stable value if you took all of those off is another
matter. It probably wouldn't.
Senator MILLIKIN. When we get outside of those two countries, what
other countries have it ? Would Swiss currency ?
Mr. ACHESON. Yes.
Senator MILLIKIN. Would Swedish currency ?
Mr. ACHESON. Swedish, yes; I should think so.

You could have a
reasonably stable value with the franc, but this present one isn't reasonably stable; no.
Senator MILLIKIN. Would you say that the conditions are now clear
enough in France to give the franc a reasonably stable value?
Mr. ACHESON. Well, I just don't know enough about it. I couldn't
answer that.
Senator MILLIKIN. Have we omitted any country which, roughly
speaking, has a currency that carries reasonably stable international
value?
Senator TOBEY. Canadian dollar.
Senator MILLIKIN. Canadian dollar?
Mr. ACHESON. Yes, the Canadian dollar. There may be some
others. I think you have included some that probably haven't got it.
Senator TAFT. Most of the South American currencies are stable
today. They might not be tomorrow.
Mr. ACHESON. With most of those or many of those, we have had
stabilization arrangements, so that we have made them stable in
some respects.
Senator TAFT. Well, no. Isn't it true, though, that they are
dollars ?
Mr. ACHESON. That is so, yes.
Senator TAFT. SO that they are actually able to do it themselves.
Senator MILLIKIN. Let me pursue my question a little further now.
Senator TOBEY. He has got a point.
Senator MILLIKIN. I think you will agree, Mr. Secretary, that there
is a definite relationship between a stable government and a stable
currency.
Mr. ACHESON. There is—there must be—some explanation for it.
Senator MILLIKIN. IS it possible to conceive of a stable currency
in a country with an unstable government ?
Mr. ACHESON. I don't know. I don't know what significance that
has. If you——
Senator MILLIKIN. Well, I will develop that.
Mr. ACHESON. For instance, before the war I suppose that the
French franc was stable at the rate at which it was kept by the tripartite agreement. Nothing was more unstable than the French
Government. It changed sometimes twice a year.
Senator MILLIKIN. Yes; but it changed within a stable system up
to that time.
Mr. ACHESON. Oh, you mean that if you have complete revolution
and throw everything out and change the system ?
Senator MILLIKIN. I mean this: That a change in the Government
of the United States or a change in the Government of Britain or a
change in the Government of France, operating within a stable overall system, is not necessarily an element of instability; is that not
correct ?



48

BRETTON WOODS AGREEMENTS ACT

Mr. ACHESON. Yes; if you were going to have revolution and
repudiation of debt and everything, of course, you couldn't have a
stable currency.
Senator MILLIKIN. SO that will you agree with me that as to all
of these other countries in continental Europe, for example, other
than those that we have mentioned—and I think the only country
that we have mentioned in continental Europe that might have a
semblance of a stable currency from an international standpoint is
France—are not all of those countries, in your judgment, confronted
with more than a possibility, with a rather strong possibility, of
one or two or more revolutions and counterrevolutions before they
will achieve what might be called a stable svstem of government?
Mr. ACHESON. Well, I wouldn't want to limit that danger to those
particular countries. I should think that we might look with some
apprehension upon the whole state of the world.
Senator MILLIKIN. Yes.
Mr. ACHESON. Certainly that is a danger if we are not able to work
out some sensible international economic arrangements.
Senator MILLIKIN. I wouldn't take in too much territory. I am
just thinking now of continental Europe. With the possible exception
of what it may be possible to evaluate as a stable currency of France,
is there a country in continental Europe, with the possible exception,
let us say, of Denmark and Sweden—I mean, and Switzerland—is
there a single country in continental Europe that isn't faced with a
probability of one or more revolutions and counterrevolutions within
the next few years ?
Mr. ACHESON. I suppose that there is hardly a country in the world
that isn't faced with that, if we do not work out some intelligent,
sensible arrangements.
Senator MILLIKIN. NOW, then, confronted with that, how can you
possibly set up anything resembling a stable currency for those countries that are confronted with all of those instable elements which are
bound to reflect on the stability of the thing we are trying to do?
Mr. ACHESON. Well, I think I see what you have in mind. This is
the cart-before-the-horse argument, or the chicken-and-the-egg one.
Do you set up stable governments first and then work out economic arrangements, or do you with economic arrangements assist in creating
stable governments? I should think that the way to begin is to begin,
and I do not conceive it possible to have stable governments anywhere
with the whole economic arrangements of the world in a state of chaos.
Senator MILLIKIN. Well, do the proponents of this fund go so far
as to believe that this little blood injection that we are giving to these
countries in continental Europe will stay this process of revolution
and counterrevolution ?
Mr. ACHESON. NO. I think—I am not sure that you were here a
moment ago when I earnestly disclaimed any argument that this was
a panacea.
Senator MILLIKIN. NO ; I was not.
Mr. ACHESON. This is not going to do that at all.
Senator MILLIKIN. YOU would not make an argument of that kind.
Mr. ACHESON. But there must be a great many things done.
Senator MILLIKIN. Yes.




BRETTON WOODS AGREEMENTS ACT

49

Mr. ACHESON. And if as to each one we say, "No, this isn't the time
to do that; we must do something else," then it is like shooting at quail.
When a covey goes up, if you say, "No; I won't take that one. I will
take this one," and then your gun waves around in the air, you don't
shoot any quail at all. You have to get your eye on the bird and go
through with the situation first.
Senator MILLIKIN. DO you get any quail when you are confronted
with the fact that you can't possibly raise a covey because of the very
nature of the place where you are hunting ?
Mr. ACHESON. Well, of course that's true.
Senator MILLIKIN. And is that not the situation in the greater part
of continental Europe % so far as reaching any stability in currencies
is concerned for the next few years? And if you will go along with
me on that—or if you won't, let it be my thesis: If that be true, then
you are just attempting futilities, because w^hat is done will be repudiated and wiped out by the successor revolutions that are bound
to come.
Mr. ACHESON. Well, I think that you were not here yesterday when
I was talking about what seemed to me to be the situation in Europe
and in the Far East, which is one of unparalleled seriousness, in
which the whole fabric of social life might go to pieces unless the most
energetic steps are taken on all fronts, and on all fronts at the same
time. That is why you have to do all of these things at once. You
have to take the steps they are taking in San Francisco to try and give
some order so far as aggression is concerned in the world. You have
to take these monetary steps. You have to take the steps we are
taking in the trade-agreement field. We ought to have and will have
other meetings in the field of trade and commercial policy. A whole
gamut of things must be done and must be done very quickly, because
there isn't much time, and this thing will go to pieces.
You are quite right that this is a very serious situation. Yesterday
I was bold enough to say that there has been no such serious situation
for over a thousand years, and it seemed to me not unlike the troubles
that Europe was in after the Mohammedan invasions. It is very
serious indeed.
Senator MILLIKIN. Let me ask you this question: Under the long
view the drafts that are made on the fund for dollars, and as far as
the bank is concerned the loan of dollars, again will have to be made
good by imports into this country, will they not ?
Mr. ACHESON. Yes, I think so.
Senator TAFT. Mr. Acheson, May I, just to get back to this one
thing we didn't finish ? This basic question was whether this provision
of section 3 (a) (i), saying that—
The member desiring to purchase the currency represents that it is presentlyneeded for making in that currency payments which are consistent with the
provisions of this agreement—

is a safeguard or isn't a safeguard. I suggest that the words are so
broad, "consistent with the provisions of this agreement"—look at the
purposes of the agreement on page 1. I suppose that is the thing to
look at first. Is there any nation that couldn't make the showing,
even if the Board has the discretion, which I don't think they have,
to question their representation, that they need money in that currency




50

BRETTON WOODS AGREEMENTS ACT

to buy things in that country ? Isn't that so broad that it is really no
safeguard at all?
Mr. ACHESON. Well, I think the very breadth of it makes it the safeguard. That is what I was going to argue, and I was drawing your
attention to that.
Senator TAFT. I don't understand what you mean. That is nonsense.
Mr. ACHESON. Because I was pointing out in section 5 here that
it is very clearly stated, in my opinion, that whenever the fund is of
opinion that any member is using the resources of the fund in a
manner contrary to the purposes
Senator TAFT. Well, look at the purposes on page 1. Why, they are
so broad that you couldn't use anything contrary to the purposes of
the fund, practically, unless you—except for capital purposes, things
that are expressly stated as exceptions.
Mr. ACHESON. Well, let's look at them.
Senator TAFT. TO promote international monetary cooperation; to
facilitate the expansion and balanced growth of international trade,
and to contribute to the promotion and maintenance of high levels
of employment and real income and to the development of the productive resources of all members; to promote exchange stability; to
assist
Mr} ACHESON. That is an interesting one. Don't let us go over
that too fast.
Senator TAFT. I am suggesting that there are so many of them, you
don't have to conform to them; you can conform to any of the others
and meet your requirements under article V.
Mr. ACHESON. Well, that wouldn't be my view, that somebody could
say, "Well, it's all right. I am promoting cooperation." The answer
is: Are you promoting exchange stability ? Now, if you are not, then
you will have your drawings on the fund restricted.
Senator TAFT. Oh, no; because if
Mr. ACHESON. That is why I say the breadth of this thing is the
protection.
Senator TAFT. If you do any of these other things, you can get your
money. So, of course, you are always doing those. Any government
is always doing them.
Mr. ACHESON. YOU cannot have mechanical restrictions, Senator
Taft, which will make the thing work.
Senator TAFT. I quite agree. But I am just suggesting that this
was not a safeguard and that as a practical matter, under the terms of
the fund, every nation in the world would be able to come in and get
25 percent,of their quota and draw it down without any restrictions,
and the Board has no discretion to refuse them. That is my contention and I think substantially true, and I do not think anything
you have said answers it.
Mr. ACHESON. Well, I would bet my money that if you were the
American director on this fund you would find that this was a safeguard; and, as you would argue as strongly on my side as you are
arguing on the other side, you would prevail in securing a decision.
Senator TAFT. One other thing, just one question before wTe go on
the floor. We are debating the reciprocal trade treaties. The principal argument for the reciprocal trade treaties is that the State Department must have bargaining power. Now, I suggest that if you



BRETTON WOODS AGREEMENTS ACT

51

hold this Bretton Woods thing at all, it will give you a great deal more
bargaining power than anything you can do with a 50-percent rate.
I suggest that you are giving away $6,000,000,000 here for nothing,
at the same time that you are demanding bargaining power by a reduction of the tariff under the reciprocal trade treaty. What do you
think about that argument ? Is it a fair argument ?
Mr. ACHESON. Well, I think what you are doing if you hold up
these things is getting into the very situation that Senator Millikin
is talking* about, where you produce such utter chaos in the world that
nobody can determine anything; it will all go to pieces.
Senator TAFT. I still think that we have the bargaining power. If
we ever had the bargaining power, we have it, but right here we are
giving away a large section of it in presenting them with this $6,000,000,000 in this fund from which they can all draw.
Senator MILLIKIN. Mr. Chairman, it seems a perfect observation
to me that if this additional request for 25 percent of bargaining power
is a crucial, vital thing, we would be in a much better position if we
had a 100 percent bargaining power.
Senator FULBRIGHT. YOU mean in the reciprocal trade?
Senator MILLIKIN. Yes, exactly.
t
Senator FULBRIGHT. Perhaps we would be better, but I am afraid
they wouldn't get it.
Senator MILLIKIN. That is unfortunate. That is the fault of the
system.
Senator TAFT. Mr. Chairman, there are a great many questions I
would like to ask, but I do not insist on asking them of Mr. Acheson.
I mean the question particularly of the scarce currencies, and a number of other things in the act, but I suppose I could ask Mr. White, perhaps. Is he going to testify ?
The CHAIRMAN. Yes.
Mr. ACHESON. Dr. White will testify. I will be glad to
Senator TAFT. Have you conferred ? Is he going to testify ?
The CHAIRMAN. I conferred with some members here. I haven't

had a chance—I thought we would go on this afternoon at 2: 30 over
at the District of Columbia Committee room, right opposite the flooY
there.
Senator TAFT. I am afraid I won't be able to be there. I am afraid
I will have to be on the floor with the reciprocal trade agreement.
The CHAIRMAN. All day?
Senator TAFT. I would guess so.
Senator BUCK. What safeguard is there, Mr. Acheson, to prevent
the fund being depleted of dollars ? Suppose they all came in.
Mr. ACHESON. YOU mean what will happen under the scarce currency provision ?
Senator BUCK. Yes. I mean could they drain it of dollars?
Mr. ACHESON. Nobody can ever drain it of dollars.
Senator BUCK. Not any individual. A combination. Suppose they
all came in for dollars and all asked at the same time for 25 percent.
Mr. ACHESON. Well, you have two questions, Senator Buck. One is
what is the factual situation.
Senator BUCK. Yes.
Mr. ACHESON. Another is how it will work. Now, with respect to
whether there is a real danger that currencies will become scarce and
then the scarce currency provisions go into effect, there is, on the basis



52

BRETTON WOODS AGREEMENTS ACT

of the figures, very little likelihood that the dollar is going to become
scarce. We have, for instance, a record of the only time at which the
dollar was a scarce currency. That was between 1934 and 1938. That
came about through a great flight of capital from Europe, withdrawal of America capital, flight of other capital to the United States,
but during that 5-year period on current account there was a favorable balance so far as the United States was concerned of $1,000,000,000, a little less than $1,000,000,000.
Now, the fund is dealing only with current account. The money
in the fund is not to be used to check flights of capital; and therefore
w^e look at the favorable balance of the United States on current account and find that in those 5 years it was $1,000,000,000, which is the
only time the dollar has become scarce.
It is true that during those 5 years there were all sorts of restrictions which if they had not existed would probably have increased
this in the neighborhood of two billion or three billion or four billion,
a much larger sum. Now, how much, how many dollars are there
to cover a favorable balance of the United States on current account ?
Well, you have in the fund itself about $4,000,000,000 in gold. You
have that. Under the repurchase provisions the other countries have
to put up an equal amount of their own currencies, their own reserves,
so that would be another four billion, or eight. Then you have a requirement that rfewly mined gold outside of the United States should
be used; and in a 5-year period or a 3-year period, say, that might be
another $4,000,000,000. So you would have 12. Now, if you take
from that amount two for errors in calculating for other countries, you
would have over a 3-year period at least $10,000,000,000 without
considering any capital investment from the United States.
If the Colmer committee's judgment is right and these Bretton
Woods institutions lend enough stability to the world so that we would
lend, they say, between 2 billion and 3 billion dollars a year in the
first decade, you get up in the neighborhood of 16 or 18 billion dollars.
On current account we cannot possibly foresee a deficit of more than
one, two, three, four, or five billion, however much you want to multiply the one. So I think there w^ould not be any real danger of the
dollar becoming scarce. But if dollars did become scarce, then the
fund puts into effect a rationing system of dollars so as to provide for
fairness and not discrimination against the United States. That is
the way it works.
Senator TAFT. Mr. Acheson, following that question up—you have
opened the subject: In the first place, theoretically, purely in theory,
dollars could be exhausted in 2 years. Isn't that correct ?
Mr. ACHESON. NO ; I don't see any possible way in which they could
be exhausted in 2 years.
Senator TAFT. Theoretically. I am not talking about actuality.
I am not saying it would happen. Why not ?
Mr. ACHESON. Well, why could they, theoretically ?
Senator TAFT. Well, if nations having quotas of $5,500,000,000—
and they have some six billion outside the United States—all drew
down their dollars, they could draw twenty-seven fifty; they could
draw the first year 25 percent, thirteen seventy-five, and the second
year, thirteen seventy-five.
Mr. ACHESON. Senator Taft, nobody



BRETTON WOODS AGREEMENTS ACT

53

Senator TAFT. Which would be all of the dollars in the fund; isn't
that correct ?
Mr. ACHESON. Nobody can possibly draw dollars just for the fun
of drawing them. You only draw them to meet some adverse factor
in your balance of dollars.
Senator TAFT. But don't overlook this fact, that in the next 2 years,
if you set this thing up today, the next 2 years is going to be an
era when everybody w^ill want to buy goods in the United States and
won't be making the stuff to send back. So that you cannot go back
to any normal period. You have an exceptional, extraordinary
period. We have been lend-leasing. We have been exporting 12
billions of goods every year under lend-lease.
Mr. ACHESON. Very largely military.
Senator TAFT. And importing 3 billion, so we have had an adverse
balance of $9,000,000,000.
Mr. ACHESON. Mostly for military equipment.
Senator TAFT. Not an adverse; a favorable balance for us. Surely.
And it won't be that much, but it doesn't seem to me that a billion three
seventy-five for each of the next 2 years is an unreasonable expectation
of surplus exports over imports.
Mr. ACHESON. Then you think that we would have a favorable balance of, say, 4 billion in the next 3 or 4 years ?
Senator TAFT. Well, I think it is very easily possible.
Mr. ACHESON. All right. Let us agree to it. Then why does that
make the dollars scarce ?
Senator TAFT. Well, I am only saying that theoretically on the basis
of the thing, if countries with quotas of fifty-five hundred used 25
percent of their quota the first year and 25 percent the second, all to
buy dollars, why, the dollars would be gone. That is all I am suggesting.
Mr. ACHESON. NO ; because they have to put up an equal amount of
their own currencies, so you double that right away, and you would
then have twice as much as you think the deficit is going to be.
Senator TAFT. Surely enough, they have to put up, but they take the
dollars out and pay in their own currency, but the dollars are their
own.
Mr. ACHESON. NO. Under the repurchase provision they have to use
their own gold or foreign-exchange resources to purchase.
Senator TAFT. I suggest the repurchase provision will not be applicable for the next 2 or 3 years, that these nations will all be saying
Mr. ACHESON. Well, they can't
Senator TAFT. That they can't repay it.
Mr. ACHESON. YOU can't have it both ways, Senator Taft. Sometimes when you argue you say there is more gold outside the United
States, more gold in dollars than there ever was before.
States, more gold and dollars than there ever was before.
Mr. ACHESON. Well, you haven't said it today, but you said it on
other occasions when you debated with me.
Senator TAFT. Oh, no, no; not than there were before. Oh, no.
I say there is a large amount of foreign gold abroad ready to buy, and
so some of these people will be ruled out. I assume it is very badly
distributed, and I assume repurchase of the gold that Russia has, that



54

BRETTON WOODS AGREEMENTS ACT

they will get their billion two hundred million. I assume the repurchase of the gold in South Africa, that the British are going to take
all the dollars they can get. And then there may be some other countries that won't. It probably won't be gone. I agree it probably won't
be gone in 2 years.
Mr. ACHESON. Well, let us take your assumption about Kussia as a
test of the validity of your facts. You assume that Russia will draw
all of its quota but that the repurchase provisions will not be applicable
to Russia.
Senator TAFT. Will not operate.
Mr. ACHESON. NOW, you can't assume that.
Senator TAFT. That is right; will not operate by 3, 4, 5 years. Incidentally, if a nation won't pay
Mr. ACHESON. YOU can't
Senator TAFT. If a nation won't pay something back, they won't pay
it. How are you going to make them pay it ?
Mr. ACHESON. Oh, now you are just saying that the fund is not
going to operate according to its own principles.
Senator TAFT. I am saying a nation's obligation to pay money is
something that cannot be enforced by individuals.
Mr. ACHESON. Obviously I cannot argue with you if you say that
every provision in the fund to which I refer will be inoperative and
every one to which you refer will be operative, because that loads the
dice in your favor, naturally.
Senator TAFT. I suggest you are asking us to authorize an international body to use $6,000,000,000 of our money, and I think I have a
perfect right to assume that they will use it in the way that they possibly can use it. I don't think we can have any safeguard whatever
that they won't use it the way that the fund permits them to use it, in
the most extreme form. I think we have the right to assume that
before we go ahead with an act.
Mr. ACHESON. All right. Now you have thrown the bank into this
to get the $6,000,000,000.
Senator TAFT. That accounts both.
Mr. ACHESON. That is right.
Senator TAFT. I should perhaps have said two billion seventy-eight.
I didn't mean—I am talking about the fund for the present.
Mr. ACHESON. Yes.
Senator TAFT. The

bank is better safeguarded. The bank, we
have a veto on the loans and^ dollars. If you had anything like that
in this fund, I think I would withdraw my wThole opposition to it.
I mean that is essentially the thing. But in this case we hand over
$2,750,000,000 without a string of any kind.
Mr. ACHESON. I think we can shorten the argument by my complete
admission that if the question that you are asking me is that, assuming that none of the provisions in the fund to which I have referred
will operate, that all the other countries will operate with bad faith
and will not carry out their obligations, then all the disasters that
you can think of are likely to happen, except that, under those circumstances, the fund will blow up so badly that nobody will use any of it.
Senator TAFT. I am suggesting that the fund might work in normal
times, but any condition like that of today, in which the normal desires of these nations would be to buy billions of dollars of goods in



BRETTON WOODS AGREEMENTS ACT

55

the United States, is an abnormal condition under which the fund
will not operate and under which all of these things you speak about,
the repayment of money, just won't happen. Just as you are putting
off the removal of these exchange restrictions for 5 years, you are
going to have to put off the repayment of the money for 5 years. As
a practical matter you are trying to impose the fund on a world situation which is completely abnormal, before you have made the essential basic loans or whatever may be necessary to restore it to some
normality. That is the reason that I think I have a right to say that
the provisions that you pointed to in the fund are not like they are
under present conditions. If you can once get the thing going, 10
years from now I would say many of the objections that I am making
would be more or less out.
Mr. ACHESON. YOU understand, of course, that you do not undertake any foreign exchange transaction with any member of the fund
until the fund believes that the member is in a sufficiently stable condition so that it can, without injury to the fund, conduct those transactions. You don't begin—if you ratified this thing tomorrow, you
don't begin operating with every member of the fund. You understand that clearly ? There has to be an agreement with the fund.
Senator TAFT. There has to be an agreement as to the stabilization
formula, which, incidentally, seems to me to be something that cannot be made today, because it depends on the balance of trade in these
different countries in a postwar period which is purely imaginary.
I don't see how you can sit down today and fix the particular thing
that you are speaking about. The fund won't operate as to those
countries then, I suppose.
The CHAIRMAN. Well, gentlemen, the word has come over that we
are needed on the floor to make a quorum.
Mr. ACHESON. DO you wish me to come back this afternoon, sir ?
The CHAIRMAN. Well, we are not meeting this afternoon. The Senators all want to stay on the floor. So we are meeting tomorrow again
at 10:30, and Dr. White will start in the morning unless there are
some other questions that are to be asked of Mr. Acheson.
Senator TAFT. Well, the scarce currency I want to follow up, but I
can follow it up with Dr. White; I have no choice.
Senator TOBEY. Couldn't we meet at 10:15, and gain 15 minutes?
The CHAIRMAN. What?
Senator TOBEY. Could we not meet at 10:15, and gain 15 minutes?
The CHAIRMAN. I am afraid not.
Well, thank you very much for your assistance, Mr. Secretary.
Mr. ACHESON. Yes, sir. I am glad to be here. I get promoted.
[Laughter.]
(Whereupon, at 12: 20 p. m., an adjournment was taken until tomorrow, Thursday, June 14,1945, at 10: 30 a. m.)







BEETTON WOODS AGBEEMENTS ACT
THURSDAY, JUNE 14, 1945
UNITED STATES SENATE,
COMMITTEE ON BANKING AND CURRENCY,

Washington^ D. 0.
The committee met at 10:30 a. m., pursuant to adjournment on
Wednesday, June 13,1945, in room 301, Senate Office Building, Senator
Robert F. Wagner, chairman, presiding.
Present: Senators Wagner (chairman), Barkley, Murdock, Fulbright, Tobey, Taft, Butler, Buck, and Millikin.
The CHAIRMAN. The committee will come to order. We have a
very distinguished witness, Assistant Secretary White of the Treasury
Department.
Mr. White, we will be glad to hear from you on what we are concerned with, something you know all about, as I know and others know.
Mr. WHITE. Thank you, Mr. Chairman.
STATEMENT OF HARRY B. WHITE, ASSISTANT SECRETARY OF
THE TREASURY, WASHINGTON, D. C.
Mr. WHITE. I have a prepared statement, Mr. Chairman, which is as
follows:
To establish a sound monetary and financial basis for international
economic relations after the war the United Nations must deal with
two distinct problems in the monetary and credit field. • The first is
to promote stable and orderly exchange arrangements under which
international trade and investment can safely and profitably be carried
on. The second is to encourage international investment for productive purposes so that countries can again produce, trade, and prosper.
The Bretton Woods proposals deal with these two distinct problems
through the International Monetary Fund and the International Bank
for Reconstruction and Development.
The fund secures the cooperation of all countries in a program for
maintaining fair exchange practices. All members of the fund are
required to define their currencies in terms of gold or the United States
dollar. Changes in the established parities can be made only after
consultation with the fund and only to correct a continuing disequilibrium in a country's international economic position. In this way the
fund places the sanction of international agreement on orderly exchange adjustments and outlaws competitive exchange depreciation.
Obviously, it will not be possible, after 6 years of complete disruption in world trade, to determine with certainty the rate in terms of
gold that will be appropriate for each country. To permit prompt
correction of an error in the initially accepted parities, changes aggre.
57



58

BRETTON WOODS AGREEMENTS ACT

gating not more than 10 percent may be made by a country after consulting the fund but without the concurrence of the fund. On all
other changes in parity a member must request the concurrence of the
fund. If a country changes the parity of its currency after the fund
has expressed its objection, the country becomes ineligible to use the
resources of the fund and it may be compelled to withdraw from
membership.
The establishment of a structure of reasonable exchange rates can
thus be realized, and the maintenance of stability of those rates facilitated. But more is needed. Under the fund, countries agree to eliminate as soon as possible the restrictive and discriminatory currency
practices that stifle world trade. It will not be* possible for many
countries to remove immediately all of the restrictions that they have
continued during the war. They will need time, until they are again
producing and trading at something like prewar levels. Therefore,
during the postwar transition the fund permits countries to retain
controls which are still necessary; but they undertake to remove such
controls as soon as this becomes possible without excessive use of the
fund. Without the fund, countries could at any time place whatever
restrictions they wish on exchange transactions, or engage in any kind
of currency cutthroat practices. That is precisely what some of them
did in the 1930's, with such disastrous consequences to world trade.
To maintain stable and orderly exchange arrangements, and check
easy resort to harmful restrictive or unfair competitive devices, countries must be able to have help at a time when there is pressure on the
exchanges. The fund will have resources of 8.8 billion dollars in gold
and currencies to be used specifically for this purpose. With the
assistance that the fund can and will provide, countries get time to
take the measures necessary to restore their international economic
position without the necessity of resorting to drastic measures of contraction and restriction which so frequently help spread depression.
The aid given by the fund will be in limited amounts and under adequate safeguards.
It has been said by some critics that the fund will offer credit in a
novel way contrary to accepted credit principles. There is, however,
nothing novel about the method under which the fund operates. We
have used much the same method in our bilateral stabilization agreements, involving commitments of several hundred million dollars,
without any loss. Indeed, the fund has even more safeguards than we
were able to employ in our bilateral arrangements. The comprehensive character of the provisions that safeguard the use of the fund
and protect the value of its resources is too often overlooked. They
are an important element in the fund's constitution and should be
known to those wishing to understand the fund. An outline of the
more important of the safeguarding provisions follows:
1. Each member must subscribe gold and its own currency in an
amount equal to its quota. This subscription is returned to the member when it leaves the fund after meeting all its obligations. When
a country buys foreign exchange from the fund it must put up additional amounts of its own currency equal to the value of the foreign
exchange which it buys from the fund. Thus, the fund always holds
currency equal to at least twice the gold value of the foreign exchange
which it has sold to a member.



BRETTON WOODS AGREEMENTS ACT

59

2. The fund cannot lose from the depreciation of any currency. All
of the currencies held by the fund bear a gold value guaranty. In the
event of depreciation of a currency, that country must supply an
additional amount of currency to maintain intact the original gold
value of the fund's Holdings.
3. The fund can always sell the currencies it holds to members who
have to pay for imports from these countries. The currencies held
by the fund cannot be blocked and their use for the purposes of the
fund cannot be restricted in any way. If a country withdraws from
the fund, it must buy back any currency the fund holds in excess of its
subscription and it must pay with gold or convertible exchange.
Otherwise, the fund can liquidate its holdings of the currency to
reimburse itself. Except in case of repudiation, the fund takes no
real risk of loss. A country that repudiates its obligations to the
fund would become a financial and economic outcast.
4. There are quantitative limits on the purchase of foreign exchange from the fund. The net amount of foreign exchange purchased by a member from the fund in a 1-year period may not exceed
25 percent of its quota, and in the aggregate may not exceed its quota
plus its gold subscription. Further purchases can be made only if the
fund specifically waives these limitations and then only under conditions prescribed by the fund, which may include the deposit of appropriate collateral in addition to the member's currency.
5. A country purchasing foreign exchange from the fund must use
its gold and monetary reserves in equal amount if these reserves
exceed its quota. There are also provisions requiring a member to
repurchase its own currency from the fund as its gold and foreign
exchange reserves increase and exceed its quota. Thus, while the
currencies held by the fund are constantly changing, the fund's resources tend to return to their original composition.
6. The fund will not permit its resources to be used to support a
currency if it believes that the exchange rate is untenable. Article
XX, section 4 (b), states that the fund will not agree to a rate if
"in its opinion the par value cannot be maintained without causing
recourse to the fund on the part of that member or others on a scale
prejudicial to the fund and to members."
7. The fund will not begin operations with a country that is not
prepared to maintain stable and orderly exchange arrangements.
Article XX, section 4 (i), states:
The fund may postpone exchange transactions with any member if its circumstances are such that, in the opinion of the fund, they would lead to use of the
resources of the fund in a manner contrary to the purposes of this agreement
or prejudicial to the fund or the members.

8. The fund's resources cannot be dissipated in a capital flight.
Article VI, section 1 (a), states:
A member may not make net use of the fund's resources to meet a large or
sustained outflow of capital, and the fund may request a member to exercise
controls to prevent such use of the resources of the fund.

9. The fund can limit or stop a member at any time from using its
resources contrary to the purposes of the fund. Article V, section 5,
states:
Whenever the fund is of the opinion that any member is using the resources
of the fund in a manner contrary to the purposes of the fund, it shall present to
75673—45



5

60

BRETTON WOODS AGREEMENTS ACT

the member a report setting forth the views of the fund and prescribing a suitable time for reply. After presenting such a report to a member, the fund may
limit the use of its resources by the member. If no reply to the report is received
from the member within the prescribed time, or if the reply received is unsatisfactory, the fund may continue to limit the member's use of the fund's resources
or may, after giving reasonable notice to the member, declare it ineligible to use
the resources of the fund.

10. If a member acts contrary to the provisions of the fund on maintenance of the parity of its currency, on the termination of discriminatory currency practices, or on any other provision, the fund may
declare the member ineligible to use the resources of the fund.
The above-listed safeguards make our participation in the fund one
of the safest investments. No participation involving international
transfer of funds can be wholly without risk, but the protective features safeguarding the assets of the International Monetary Fund are
so complete as to reduce the risk of loss to a minimum.
One other and a very important provision should perhaps be emphasized. The fund will levy charges on the currency it holds in excess
of the quota of a country. These charges increase progressively with
the net amounts of foreign exchange purchased by a member and with
the length of time during which the funds are employed. All charges
are payable in gold, with minor exceptions. Thus, there is always
strong pressure being exercised to restore the make-up of the fund to
its original pattern.
Powers and safeguards have been given to the management of the
fund which will enable it to apply proper standards of credit worthiness. If a country in g'ood faith abides by the principles of the fund
and if it meets the tests specified in the agreement, then the aid given
to that country is quite in accord with the credit principles that should
govern stabilization operations.
So much for the fund. Turning now briefly to the bank.
The countries that have b^en devastated by war and the countries
that lack the modern means of production will need some foreign
capital for reconstruction and development. The Bretton Woods
Conference proposed the establishment of the International Bank for
this purpose. The bank will have capital of $9.1 billion to encourage
private international investment for sound and productive purposes.
The principal business of the bank will be to guarantee securities
of foreign governments and corporations sold to private investors.
In cases where a loan cannot be made on reasonable terms, even with
the bank's guarantee, the bank would be permitted to make the loan
directly. For such loans, it would have 20 percent of its own capital,
and it could raise additional sums by issuing its own securities.
The bank will be concerned with long-period loans for specific
projects of reconstruction and development. A loan will be made or
guaranteed by the bank only after a committee investigates the
project and reports that the loan will contribute to the productivity
of the borrowing country and that it will be in a position to service
the loan. Loans made or guaranteed by the bank must first be guaranteed by the government of the country in which the project is
located or by its central bank.
Obviously, there are risks in the bank. Obviously, some loans will
not be repaid in full. That's why a bank of the character recommended is needed. The risks of loss will be shared by all countries



BRETTON WOODS AGREEMENTS ACT

61

that subscribe to the bank. Even so, the loss will not fall wholly on
the member governments. The bank will collect commissions of 1
to iy2 percent annually on the outstanding principal of the loans it
guarantees to make. These commissions will be held as a special
reserve to meet the obligations of the bank if the loan should be defaulted. It is estimated that these reserves will be adequate to meet
all defaults if four out of five loans made or guaranteed by the bank
are met in full. Even with the experience of the 1920's, this would
appear to be a conservative reserve for losses.
If defaults cannot be met from accumulated reserves the bank will
call upon its capital. Eighty percent of the capital of the bank is
set aside as a surety fund for this purpose. It should be noted that
the aggregate of outstanding loans made or guaranteed by the bank
may not exceed the unimpaired capital and reserves of the bank. In
this way holders of securities, guaranteed or issued by the bank, are
given the greatest possible protection.
We have said, and it will bear reiteration, that the fund and bank
by themselves cannot assure either sustained prosperity or enduring
peace. They are nevertheless an important part of the structure
essential to those goals. Other measures are obviously necessary, both
in the domestic and international field. The bank and the fund not
only make a very important contribution to those goals directly but
also provide a favorable environment in which these other measures
can be more effectively carried out.
And now I should prefer to spend a little time on some points that
I think would be of special interest, and then if you like I would be
glad to answer any questions.
Senator TOBEY. And, Mr. White, having heard you were here when
most of the other witnesses testified, I take it you have heard the
colloquies that have taken place around this table, and you in turn
could go ahead as you. like in answer to those things as questions have
been asked in which they were involved.
Mr. WHITE. All right, Senator Tobey. Some of those points I will
refer to, and others may develop if there are further questions, if that
is agreeable, Mr. Chairman.
The CHAIRMAN. Yes.
Senator MURDOCK. I

would like for you to discuss somewhere in
your statement, Mr. White, this question; I don't care to have you do
it now: Whether or not a reduction in gold reserves such as the
Senate passed recently would be considered as equivalent to depreciation or devaluation of our currency ?
Mr. WHITE. I can answer that briefly now, but I would prefer, if
there is any expansion of that discussion, if you could hold your
thought and I could take it up later.
Senator MURDOCK. Very well.
Mr. WHITE. Because it may take me afield.
Senator MURDOCK. That is entirely satisfactory.
Mr. WHITE. I could say that I do not think so, and then I will leave
the reasons and further replies to any comments that you may have
to make on the subject for later discussion. Is that satisfactory?
Senator MURDOCK. That is fine.
Mr. WHITE. One of the aspects of the fund that is frequently overlooked and is very important to a proper understanding of the risks



62

BRETTON WOODS AGREEMENTS ACT

that we are undertaking in participating in the fund relates to a
number of provisions safeguarding the resources of the fund, and I
would like to spend a few minutes indicating definitely what are the
safeguards and how effective they are to our own investment and to the
resources of the fund.
I think it might be helpful if I could refer you to specific provisions, and I should like to do that. There are two general types of
safeguard in the fund. One relates to safeguard of the assets of
our own investment and of the resources of the fund, safeguards
against possible monetary loss. That is one type of safeguards.
There is a second type of safeguard, and there is a certain amount of
overlapping obviousty, but not enough so% that they are not better
treated separately. The second type of safeguard relates to the protection of the powers of the fund against abuse. I am going to talk
about the first type of safeguard, and then I will go to the second.
Quite obviously there are risks inherent in any participation in
international financial transactions. One cannot think of any type
of safeguard which would eliminate all risk of monetary loss. There
is some risk. But what we have attempted to do was to include provisions in the fund which would reduce those risks to a minimum.
We were aware, in our very early discussions, of the various opportunities of loss, of the various loopholes that had to be plugged. We
think that we have effectively plugged those loopholes and protected
the assets of the fund against all sources of loss except one, which I
will indicate.
Now, the first provision that I want to call your attention to is
on page 7 of the articles of agreement, article IV, section 8.
Senator MTJRDOCK. What page is that?
Senator FULBRIGHT. 7.
Mr. WHITE. That is on page 7.
Senator MURDOCK. In this [indicating] ?
Mr. WHITE. In this book, in the articles of agreement. That is
correct, sir. Page 7, halfway down on the page, section 8. This provision is designed to keep the assets of the fund, which are made up
of various currencies, at their same gold value. In other words, any
depreciation of any currency does not affect the gold value of the
aggregate currencies in the fund, because the country whose currency
may have depreciated has to put more of its currency in. It has to
put enough more of its currency in to maintain the original aggregate
gold value. The provision reads:
The gold value of the fund's assets shall be maintained notwithstanding changes.
in the par or foreign exchange value of the currency of any member.

And the next section describes that—
Whenever the par value of a member's currency is reduced, or the foreign
exchange value of a member's currency has, in the opinion of the fund, depreciated to a significant extent within that member's territories, the member shall
pay to the fund within a reasonable time an amount of its own currency equal to
the reduction in the gold value of its currency held by the fund.

Now, the effect of that provision is that the fund's total assets of
gold and various currencies—of pesos and dollars and sterling and
milreis and francs—are always worth the same amount of gold. I t
starts with $8,800,000,000; it still has that aggregate value as long as




BRETTON WOODS AGREEMENTS ACT

63

it continues to function. It may have made, doubtless will have made,
some earnings that would be added on, but the original assets continue
to have the same gold value.
That is the first provision.
Senator BARKLEY. In other words, the lower the gold basis becomes
the more they must put in to keep it at par, to keep the basis the same?
Mr. WHITE. That is right. You might state it that way, Senator
Barkley, or we might prefer to say that any reduction in the value
of currency in terms of gold, any unit of currency, has to be compensated for by requiring more of that currency to be put in.
Senator MILLIKIN. Mr. Chairman.
The CHAIRMAN. Yes.
Senator MILLIKIN. It

is equally true, is it not, Mr. White, that the
value of (a) and (b) of section 8 depends entirely on the value of
the currency in relation to gold ?
Mr. WHITE. Yes. Well, that is fixed at the start, Senator.
Senator MILLIKIN. Yes; it is fixed, but it may be fixed incorrectly.
You may be dealing with a currency that is so instable that you cannot
give it a proper reference to gold; is that not possible ?
Mr. WHITE. There are two parts to your question, Senator. You
are partly correct in this sense—that when the currency of any country
is put in the fund it has a stable value at that time.
Senator MILLIKIN. Yes ?
Mr. WHITE. Otherwise they cannot enter the fund fully.
Senator MILLIKIN. Yes?
Mr. WHITE. NOW, subsequent to that, Senator, as you say, the currency may depreciate.
Senator MILLIKIN. Yes.
Mr. WHITE. If it does, the member country whose currency it is,
has to put in more of that currency, so that the gold value of the
aggregate which they put in is always the same.
Senator MILLIKIN. And in establishing the original gold value of
the currency, there also you have a question of appraisal ?
Mr. WHITE. That is right. And we will come to that a little later.
Senator MILLIKIN. And you have to make a correct appraisal?
Mr. WHITE. YOU are quite correct. And that is one of the provisions that we will be concerned with later. Do you mind holding your
further questions, Senator, until we come to that point?
Senator MILLIKIN. All right.
Mr. WHITE. SO much for that first provision.
Senator MURDOCK. Suppose they would increase ?
Mr. WHITE. Then the reverse is true, Senator Murdock. They
get
Senator TOBEY. Paragraph (c).
Senator BARKLEY. (C).
*
Mr. WHITE. The only reason I am not stressing that is that doesn't
happen so frequently, and it would not be a cause of loss.
Senator MURDOCK. It doesn't happen so frequently.
• Mr. WHITE. The second provision that I want to call your attention
to is on page 3. Page 3, article III, on the top of the page, section 3
(a), right on top of the page, "Time, place, and form of payment."
Now, this provision is designed to make certain that the collateral
of the country which borrows from the fund, if you want to call it



64

BRETTON WOODS AGREEMENTS ACT

borrowing—we prefer to call it purchasing of exchange—the collateral held by the fund is at least twice what it owes the fund. That
is quite important. The collateral left with the fund by a country
is at least twice in gold value what it owes the fund. And that is
taken care of by two provisions. The first provision is (a). That is,
the subscription of each member shall be equal to its quota and shall
be paid in full to the fund at the appropriate depository on or before
the date when the member becomes eligible—as sort of entrance fee,
if you like—a country has to pay its quota partly in gold, partly in
its local currency. Before it can do any business it has to put in that
amount of money in toto.
Senator BUCK. Every country has to put in some gold ?
Mr. WHITE. Every country, some gold, yes. The less gold a country
has, the less it puts in. The actual provision states that a country has
the choice of putting in either 25 percent of its quota in gold or 10
percent of its gold holdings. And, Senator Buck, the purpose of that
is this: A country that has a lot of gold holdings, such as the United
States, for example, or France, would elect the 25 percent of its quota.
Our quota, for example, being 2% billion, a fourth of that would be
somewhere in the neighborhood in $675,000,000. A country, however,
that has a small amount of gold, like Greece, for example
Senator BUCK. Would take 10 percent.
Mr. WHITE. Would take 10 percent of its gold holdings; and one
of the purposes of that provision is not to exclude any country from
participation merely by the fact that it has lost most of its gold or
never had much gold.
The second part of the provision that assures double collateral
will be found on page 8, article V. Page 8, article V, sections 2 and 3.
A VOICE. Section 2 is all right.
Mr. WHITE. TWO and three.
That section provides that when a member buys foreign exchange
it has to pay in an equal amount of its own currency. If a country
comes to the fund to buy foreign exchange—some people like to refer
to it as borrowing from the fund—the country that does the borrowing or does the purchasing has to put in an additional amount equal
to its purchases or borrowings so that the fund would have at least
double the amount due- it.
Now let me try to make that clear. Supposing country X has a
quota of around a hundred million dollars, it starts by putting a
hundred million dollars in the fund, some gold, some of its local
currency, whatever the name of its currency might be. Now, that
remains in the fund. Supposing country X during the first year
comes to the fund to buy sterling, dollars, francs, various currencies,
or any one of them, up to the maximum which it is permitted under
usual circumstances, namely, 25 percent of its quota; in other words,
during the course of the first year it buys $25,000,000 worth of dollars,
if you like. Country X would have put in $25,000,000 of its local
currency.
Now, then, what does the fund have? The fund has the original
hundred million put in by country X, plus the $25,000,000 which
country X has to put in to buy 25,000,000 of some other currency.
So the fund has $125,000,000 worth of the currency of country X.




BRETTON WOODS AGREEMENTS ACT

65

What does country X owe the fund? $25,000,000 for whatever
currency it bought. So at the end of the first year the fund would
have collateral which is worth five times more than the borrowing.
It has 500 percent collateral.
Senator MILLIKIN. Mr. Chairman.
The CHAIRMAN.

Yes.

Mr. WHITE. Senator ?
Senator MILLIKIN. That, Mr. White, all depends upon the correctness of the valuation of the currency of the particular country in
relation to gold, does it not ?
Mr. WHITE. Quite, Senator. Your point would apply to many of
these provisions, and we will come later to an examination of the
merits of the particular provision we are now discussing.
Senator MILLIKIN. All right.
Mr. WHITE. But that qualification would apply right through here.
Senator MILLIKIN. Yes.
Senator BUCK. May I ask one question: Are they limited to 25
percent of the deposit ?
Mr. WHITE. During the first year.
Senator BUCK. During the first year.
Mr. WHITE. Except under special conditions. That limit may be
waived.
Senator BUCK. In subsequent years can they be increased to a hundred percent ?
Mr. WHITE. The next year another 25 percent.
Senator BUCK. That is 50 percent.
Mr. WHITE. That would be 50 percent. And I want to show how
the amount of collateral diminishes from five times to double. The
second year the country X took their full quota the fund would have
$150,000,000 of currency unit X, while country X would owe the fund
$50,000,000.
Senator BUCK. Three times as much.
Mr. WHITE, It would be three times. The next year it would be
175,000,000, and they would owe 75,000,000; and if they took their
full quota, country X would owe the fund a hundred million dollars
for the currencies it bought, and the fund would have as collateral
$200,000,000 of unit X. In other words, the fund would never have
less collateral than twice the amount owed to the fund, which is as
safe a margin of good collateral as anyone could want to ask. Rarely
do you get 200 percent collateral of this quality. We will examine
the quality of the collateral a little later.
Senator MILLIKIN. Mr. Chairman.
The CHAIRMAN. Senator Millikin.
Senator MILLIKIN. Would this be correct, Mr. White: That if a
country makes repeated drafts on the fund would that not in itself
show that its own currency had an element of instability in it ?
Mr. WHITE. Not necessarily, Senator, for this reason. Under normal circumstances you are correct. You might be correct, but not
necessarily so with the kind of operations that occur with the fund.
Senator MILLIKIN. I do not want to interfere with the orderly
presentation.
Mr. WHITE. NO. That is quite in point.




66

BRETTON WOODS AGREEMENTS ACT

Where there is an increasing demand for foreign exchange, as for example, in countries that are experiencing what we call a flight of
capital
Senator MILLIKIN. Yes.
Mr. WHITE. Where the resident does not have confidence in his own
currency——
Senator MILLIKIN. That is right.
Mr. WHITE. AS was the case in France, you will remember, in 1935,
'36, and '37, and in many other countries where they preferred the
dollar both for speculative reasons, and for security reasons. They
didn't, have confidence in either the political stability or the economic
stability or in the value of the currency, they would get out of their
own currency into the dollar, and that would create a big demand for
dollar exchange, and in that case you would be correct. But in that
kind of operation, which we call a capital operation, they cannot come
to the fund for dollar exchange. The only time they can come to the
fund to purchase foreign exchange is when they need it to pay for goods
and services on current account. It frequently happens in a country's history—it happens with us as well as with other countries—that
there are periods of maybe 1, 2, 3, 4 years or more, when the demand
for foreign exchange is in excess of the incoming supply, and when
they need to acquire foreign exchange either by the sale of gold or
through some credit operation.
, Senator MILLIKIN. But generally speaking, even for goods and
services, if the currency of a particular nation has a stabilized relative
value, it would not have to funnel into the fund, would it?
Mr. WHITE. NO ; the member country would not go to the fund
Senator MILLIKIN. Yes.
Mr. WHITE. For the currency unless it needed to acquire foreign
currencies because it was buying more than it was selling.
Senator MILLIKIN. Yes.
Mr. WHITE. Of goods and services.
Senator MILLIKIN. AS I get the picture of—the demands that are
made on the fund will come about because the particular currency
standing on its own feet does not have a stable value
Mr. WHITE. N O ; not necessarily.
Senator MILLIKIN. Such as a trader would be willing to accept on
its own feet.
Mr. WHITE. The experience of almost every country—I don't think
there are any exceptions—is that there are periods when it needs to
acquire foreign exchange in excess of what it is getting from its exports.
Senator MILLIKIN. I understand that. But if that is a repeat performance
Mr. WHITE. It frequently is.
Senator MILLIKIN. If that continues, becomes a regular habit, does
that not in itself show that there is a basic instability in this currency?
Mr. W HITE - Let us rather put it this way, Senator, and I think I see
your point. If a country is continually confronted with an adverse
balance of payments
Senator MILLIKIN. Yes.
Mr. WHITE. Continually, year after year after year, then it is what
we call in basic disequilibrium. It may not be because of a weakness



BRETTON WOODS AGREEMENTS ACT

67

in its currency. It may be for other reasons. It may also be due to a
weakness in its currency. In that case something has to be done. And
we will come to that.
Senator MILLIKIN. All right.
Mr. WHITE. But that is a definite possibility.
Senator MXJRDOCK. Mr. Chairman, in line with Senator Millikin's
question, I think, if I understood you, Senator Millikin, you have this
in mind. Let us suppose now that we don't create an international
fund, and there is a demand on the part of country X, let us say, out of
line with the demands of the other countries for foreign exchange.
Where—how do they get that now ? How w'ould they get it without
the international exchange?
Senator MILLIKIN. Well, in normal times that is worked out through
private international exchange.
,
Mr. WHITE. Well, in
Senator MURDOCK. NOW, that suggests this question to me. Why
can't they follow the channels that they normally would?
Mr. WHITE. They do.
Senator MURDOCK. With the fund in existence?
Mr. WHITE. They do.
Senator MURDOCK. They still go through the normal channels?
Mr. WHITE. They do precisely that.
Senator MURDOCK. AS long as they can?
Mr. WHITE. Not as long as they can.
Senator MURDOCK. IS that what you had in mind?
Senator MILLIKIN. Not only that; but I say when they go beyond
that and have to come to the fund, and have to repeatedly, that shows
in itself there is a basic instability.
Mr. WHITE. I think that is a misunderstanding and a misapprehension which I would like to clear up.
Senator MILLIKIN. Yes.
Mr. WHITE. But it comes under another point.
Senator MILLIKIN. All right.
Mr. WHITE. But, Senator Murdock, when I say that with the fund
countries will function the same, what I mean is they go to their
usual sources to get foreign exchange. It may be to sell gold. It may
be they are getting credit from commercial concerns, short-term credit.
It may be they will get short-term credit from banks for a seasonal
movement. That will go on just the same. It is only when the central
bank or the treasury or the stabilization fund—whichever is the fiscal
agent of a government—sees from the operations that there is an
inadequacy of foreign exchange that can be met only by dipping into
its gold reserves more than they think is desirable, that the central
bank comes to the fund to buy foreign exchange.
Senator MURDOCK. SO that when the condition, let us say, becomes
abnormal, would that be true ? Then they come to the fund ?
Mr. WHITE. NO ; it is not an abnormal condition. It is a common
condition, but it is a condition that would apply only to countries
some of the time.
Senator MURDOCK. Well, let us say, as long as country X can function through the normal channels in the acquisition of foreign exchange, she would not come to the fund ?
Mr. WHITE. Well, I am afraid I have to give both a "yes" and a
"no" answer to that, and I will explain it, Senator Murdock.



68

BRETTON WOODS AGREEMENTS ACT

Senator MILLIKIN. I believe, Mr. White, if sometime during the
presentation you could give us a case example of what finally culminates in a request on the fund for somethingMr. WHITE. I will be glad to do that.
Senator MILLIKIN. It would tend to clarify the whole thing.
^
Mr. WHITE. Suppose I do that right now, then the discussion might
more easily be followed.
Let us take country X the case you cite. Supposing country X has
a favorable balance of payments. In other words, it is selling more
coffee and cotton and whatever else it sells, in excess of its imports;
so that there are sums due it. That country does not come to the fund;
it has no occasion to come to the fund. It is acquiring gold or other
foreign-exchange assets.
Supposing, however, that, as is possible after the war—2 or 3 years
from now, it is buying more than it is selling, so that it has to get
foreign exchange. It may be sterling, it may be dollars, or both.
Now, it can get that foreign exchange in one or all of three ways:
(1) It can take gold out of its reserves, sell that gold in New York
to the Treasury, or in London, and buy dollars or sterling and make
it available to its traders. It can get foreign exchange through
the sale of gold. That's clear. That is one way. "
The second way is to borrow abroad. If it is a temporary shortage,
if it is a seasonal movement, if the central bank expects, in other
words, that in a few months the movement will be the other way, it
can go to a commercial bank and borrow. Sometimes the credit of
some countries is good enough so they don't have to leave any collateral.
If they have a stabilization arrangement wTith us, as some of the
countries do, they can get dollar exchange from us in return for their
own currency. That is a bilateral arrangement. But let us leave that
out of the discussion for the moment.
The third way that they can get foreign exchange is to cut their
imports, cut their purchases, by imposing exchange restrictions or in
any other way, and try to stimulate exports by depreciating their
currency (in terms of gold).
The latter course, which countries frequently resort to when they
do not have adequate gold reserves, has unfavorable consequences for
the rest of the world.
Senator MILLIKIN. That is what you are trying to reach with this
fund?
Mr. WHITE. That is what we are trying to avoid. So we say to that
country: "If you are in that position, you can come to the fund. Your
central bank comes to the fund, and if you need it for current exports,
to pay for current goods and services, and not for a flight of capital;
if you need it for the purposes which are indicated, and if you are
pursuing policies which are in accord with the principles of the
fund"—and that is something I want to discuss later—"then you have
a right to come to the fund and say, 'We want to buy dollars, and here
is our currency in payment.' " Country X goes to the fund and buys
dollars if it needs them, or sterling—it is permitted to buy only the
specific currency it needs—and puts in its own money, whatever it may
be. It may either continue to buy for several years, or it may stop
buying. In any case, they have to pay interest on that, and that




BRETTON WOODS AGREEMENTS ACT

69

interest increases the longer the delay in repurchasing their own
currency from the fund.
They later begin to repurchase, because by the time several years
have passed they are on the other side of the swing. Either they
begin to have a favorable balance of payments or they have to pull
their belts in and cut down on imports. They begin to repurchase
that exchange, and they begin to buy back their own money, paying
for it with dollars or gold. So over a period of 4 or 5 years the fund's
holdings will tend to be back to the original position.
In other words, the fund is a sort of cushion. It provides reserves,
if you like, when a country is in difficulties. Instead of doing the sort
of things that will be bad for the other countries, as in the thirties,
member countries in difficulties can be taken care of temporarily by
the fund in the same way as a situation would be handled by a bank
that has a good customer who runs into a bad season: the customer
can come to the bank and borrow with adequate collateral and then
pay back the loan when conditions are better.
The adequacy of the collateral, the value of that collateral, which
is important from the point of view of our risk is a matter I want
to take up later.
Senator BARKLEY. But if the individual who wants to borrow the
money from the bank, under your illustration, happens to be a stockholder in the bank, he is not relieved from the obligation of putting
up collateral to secure the loan that he makes from the bank.
Mr. WHITE. But neither is he relieved from any collateral requirements with the fund. He always has to have it.
Senator BARKLEY. That is what I mean. It is a parallel situation.
Mr. WHITE. Right.
Senator BARKLEY. The fact that a nation is a stockholder in this
fund in no way relieves it of the obligation to put up the collateral
if it uses the fund.
Mr. WHITE. That is quite true. More than that, Senator Barkley,
I do not think there is any bank that requires either the quality or
the amount of collateral that this fund requires. And that is what
I want to show: that the risk of monetary loss arises from only one
source. I will indicate what that source is.
Senator TOBEY. I S it not your opinion, then, Mr. White, that anyone who in criticizing—and we expect them to criticize—that anyone
who in criticizing this fund makes the statements that w^e are throwing money down a rat hole or that we are giving money away and
it is not going to come back, and with that dogmatic expression behind it, is about a hundred percent wet ? Isn't that right ?
Mr. WHITE. They just don't understand the fund.
Senator TOBEY. And they don't want to understand the fund.
Mr. WHITE. Well, I don't know^ about that. But they don't understand the fund.
Senator TOBEY. NO ; that type of mind starts with the premise that
the whole thing is no good and spends all its time justifying that
point of view. That is the trouble.
Senator MILLIKIN. Well, isn't that dogmatic ? Mr. Chairman, may
I read something ?
Senator TOBEY. It is truth, just the same. Sometimes dogma is
truth.



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BRETTON WOODS AGREEMENTS ACT

Senator MILLIKIN. When I got home last night I found my April 7
issue of the Economist. I would like to read into the record what
it has to gay about Bretton Woods :
The Bretton Woods bill is not making very rapid progress, and it is reported
that the administration lias abandoned its original hope of getting it through
before the San Francisco Conference opens. Whether the decision, when it
comes, will be favorable or unfavorable is still obscure, though the greatest
probability would seem to be that the bill will be passed with amendments.
An impetus in this direction has been given by a report by the eminently respectable Committee for Economic Development, whose reservedly favorable
attitude may serve to offset the more downright hostility of the American
Bankers' Association.
Both the CED—

That is the Committee for Economic Development—
and the ABA, however—and this is a very general attitude—profess more love
for the Reconstruction Bank than for the Monetary Fund. The ABA would
abolish the fund entirely and transfer to the bank the only function now
attributed to the fund which is thought to be useful—the making of loans to
facilitate the stabilization of currencies. The CED does not go as far as this,
but it would restrict the activities of the fund to currency transactions for the
correction of temporary disequilibrium. The bogey, to both organizations—'

And mark this well, please—
The bogey, to both organizations, is the possibility that the fund will be left
holding only weak currencies. This is, of course, a necessary consequence of the
purpose for which it is created, and the fact that it is urged as an objection
shows how far the American business community is from seeing the fund in
the same light in which it appears to other countries. The bill may be passed
by Congress, but there is every indication that Bretton Woods will mean different things in different countries.
Mr. WHITE. I am glad you read that statement, because that points

up precisely the point, Senator Millikin. It provides an excellent
basis for the discussion which will follow.
The CHAIRMAN. May I inquire, was that statement made before the
House passed the bill ?
Senator MILLIKIN. This was April 7. The issue of the Economist
is very delayed now. It takes several weeks.
Senator TOBEY. A lot of time has gone since then, and I would like
to mention, Mr. Chairman, to put into the record, following this
article, a most fulsome editorial praising the Bretton Woods agreements, in the American Banker, and in it it praises the wonderful job
the House has done, the statesmanship, and the fine results secured,
and praises it almost without limit. I think it would read well right
there.
(The article referred to is as follows:)
[American Banker, May 29, 1945]
T H E BBETTON WOODS COMPBOMISE

(Thank you, Messrs. Congressmen)
The "compromise" amendments to the Bretton Woods bill represent a grand
and heart-warming accomplishment. American democracy can be proud of such
a demonstration of wisdom and effectiveness. We can be proud of the work of
' the House Banking and Currency Committee for having drafted so wise a framework for United States participation in the International Monetary Fund and
the International Bank for Reconstruction and Development.
There appears to be no doubt that the amended bill will pass the House by
a good majority and that while there may be some political fulminations in



BRETTON WOODS AGREEMENTS ACT

71

the Senate, the amended bill will be substantially enacted into law by autumn.
If the Senate process could be speeded up so that it can pass upon the measure
before its summer recess, it would be better.
The world has waited too long already for the pattern of economic cooperation in the peace. Waiting has been disillusioning. It has strengthened the
forces abroad which tremble as the result of past experiences with the United
States. They remember the ineptitude of our international economic policy (or
lack of one) in the past and wonder whether we can- be trusted to be more
consistent in our foreign loans and export-import and tariff program in the
future. Their fears lead them to argue that the way of safety for their countries
is by special trade agreements, barter arrangements, and imperial preferences
until the world, and particularly the United States, has settled down to a new
and stable working stage in world trade long after the war. There are many
practical and worried men of affairs who find themselves thinking such thoughts,
particularly in Great Britain. Every hour of delay in fixing the pattern of
world economic cooperation makes such thinking seem logical. This is why we
urge earliest possible action in the Senate on the Bretton Woods bill.
However, the outline of United States participation seems pretty clearly set
in these House committee amendments. There has been no sign that the interpretation which they place upon the fund as an instrument for short term and
temporary stabilization credits only will not be acceptable to the other 43 nations
which formulated and signed the Bretton Woods agreements. Wherefore, it
would seem, the world can proceed in the resumption of inter-nation trading
upon the assumption that within the foreseeable near future the Bretton Woods
fund and bank will be in operation.
That is all to the good for world economic health. It helps to dispell that
sinking sensation in the pit of our stomachs when we contemplate the possibility
of a drift again from economic warfare, isolationism, and imperialism into a
World War III.
Let us hope that the United Nations Conference on International Organization
currently meeting at San Francisco is equally fruitful and that when the agreement arrived at there is before our Congress it will receive equally wise treatment and, if needed, interpretation, whiclr will strengthen the cause of sanity
and democracy in world order!
The compromise amendments added by the House committee to the Bretton
Woods bill do those two very things: (1) The stabilization loan limits expressed for the fund definitely strengthen the hands of its management in
preventing abuses of its powers. The requirement that the United States Governor of the fund and bank be subject to an advisory council and responsible to
Congress democratizes our participation. Both were needed additions to the
bill.
Of course, the mere passing of a law, however wisely drawn and amended, will
not assure us of a wisely managed world fund and bank. Equal wisdom must
attend the selection of its personnel.
But, for the drafting of the compromise amendments and the approval of the bill
by so great a majority as to assure House passage, we compliment and thank the
members of the House Committee on Banking and Currency. Its members worked
diligently and intelligently, first to understand the Bretton Woods proposals and
the criticisms aimed at their weak points, and then ingeniously and swiftly
resolved the conflicts into a compromise which gives the world the go-ahead signal
on economic cooperation. Chairman of the Committee Brent Spence displayed
extraordinary skill in legislative leadership in bringing about this result and in
keeping the committee hearings on a high plane when there was so much temptation to indulge in political * demagoguery. Representative Jesse Wolcott, who
as Republican congressional delegate to the Bretton Woods Conference, kept
himself uncommitted, so that as a member of the House Banking and Currency
Committee he could make up his own mind, performed a public service of worldwide significance when he saw how sensible were the criticisms of the fund and
then sponsored the cause of compromise to incorporate them in the bill. These
two men, one a Democrat, the other a Republican, proved themselves talented
legislative workmen. The prestige and influence of the entire membership of tne
House Banking and Currency Committee is handsomely enhanced by the fine
handling of the hearings and issues involved in the Bretton Woods bill. We say
again, we thank you.
We believe we can add that the little people of the whole world also are saying,
"Thank you." They cannot understand why anything, money or material,, should




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BRETTON WOODS AGREEMENTS ACT

be allowed to stand in the way of the effective democratic cooperation of nations
toward the world economic peace which is necessary to end world wars and
freedom from fear.

Senator MILLIKIN. I am making the point, Senator Tobey, that it
is more than dogma by a few obstructionists who think that this fund
will wind up with weak currencies, and I am citing the opinion of
The Economist that they regard that as the very purpose of the fund.
Let me repeat again:
This is, of course, a necessary consequence of the purpose for which it is created, and the fact that it is urged as an objection shows how far the Americ'an
business community is from seeing the fund in the same light in which it
appears—

to whom ?—
to other countries.

Senator TOBEY. Yes. Well, now, as a corollary to that I point out
that the American Bankers Association, through the very estimable
gentlemen at the head of it, opposed the fund particularly, and they
gave their reasons for it; and now that it is a fait accompli as far as
the House goes, with some amendments which are legislative and not
to be referred back to other nations, the American Banker, the daily
paper of the banking profession, now comes out and praises the accomplishment, which includes the fund; and I thought it would be
helpful, in view of the tenor of this editorial, to put in the record at
this point the American Banker's pronunciamento of approval.
That is all.
Senator MILLIKIN. I think it would be a very good thing to do.
Mr. WHITE. I am glad you read that, because that does point up
some of the misunderstanding. I might suggest that, while the London Economist is a very estimable paper, I do not think it is any more
estimable that the Commercial and Financial Chronicle or many others
in this country, and the opinion stated therein is the opinion of one
or more journalists in the economic field and is not to be taken as
the last word in the subject.
Now let us examine what is the value of the currencies that are in
the fund, and what is meant, if anything, by weak currencies and strong
currencies. I think it is worth spending time on because so much stress
seems to be laid upon that point which springs from a misunderstanding of the operations and the safeguarding features of the fund.
No,w, then
Senator MURDOCK. Mr. Chairman, is it understood that the article
referred to by Senator Tobey goes in- the record here ?
The CHAIRMAN. It will be; yes.
Mr. WHITE. YOU remember I said that the fund has collateral of
at least 200 percent. If they utilize their full quota, it goes down
to 200 percent. Prior to that, it is 300 percent or 400 percent. Now,
that is what you apparently have some doubts upon and to which
you think that writer refers.
Senator MILLIKIN. I am afraid, and, Mr. White, I will tell you
frankly, I am afraid that this result which these fellows in London
think is the purpose of the fund, will in fact be the result, regardless
of whether it is the purpose. Now, that is the whole purpose of my
probing into this thing.




BRETTON WOODS AGREEMENTS ACT

73

Mr. WHITE. And that is an understandable fact, and we are glad to
explain it, and I am sure that you are eager to get at a correct
understanding.
Senator MILLIKIN. I am.
Mr. WHITE. And that is why I am glad to take the time to explain
it. One must remember that it is a point of view which we are going
to examine.
Senator MILLIKIN. I should like to add, Mr. White, that without the
benefit of that opinion I would still have the fear in my mind that
that might be the result, and regardless of the flow of opinion one way
or the other I should like to probe it for my own satisfaction.
Mr. WHITE. Quite so. And it is because you have that fear, and
it is because I am sure you want to get at the facts, that I am happy
to discuss it.
These currencies, remember, have a collateral value in gold of at
least twice what any country owes them. Now, the question you are
raising is as to the adequacy of that collateral value.
Senator MILLIKIN. That is right.
Mr. WHITE. In other words, when I say that the cruzeiros
Senator MILLIKIN. That's it.
Mr. WHITE. —are worth $200 million in the fund if Brazil—taking
that country simply for purposes of illustration—has bought a hundred million dollars' worth of' foreign exchange, then what you seem
to be having fears about is: Are the cruzeiros worth $200 million ?
Senator MILLIKIN. Exactly.
Mr. WHITE. NOW, there are provisions in the fund aimed precisely
at that difficulty, which I assure you we foresaw in the early beginnings. We wanted to make certain that the currency held by the
Fund had a value in excess of what the country owed the Fund, and
we proceeded to surround the value of the collateral with such safeguards as we could provide. What were those safeguards? They
were the following:
In the first place, the currency that is in the fund has no strings attached to it. It is better than the same currency in anybody else's
hands. Let us refer simply to country X. Country X might have restrictions on the use of its currency. It may say to foreign holders of
its currency, "We have restriction on the use of our currency for such
and such purpose." But country X, in undertaking membership
In this fund and depositing its money, agrees that it will put r\o such
restrictions on that currency. In other words, the currency that is held
by the fund is better than similar currency in anybody else's hands
because there can be no strings attached to it.
Secondly, when you say that you doubt the value of the currency,
remember that the question of the value of the currency only arises—
and this is important to remember—only if and when the country
withdraws, either because it withdraws voluntarily or because it is
compelled to withdraw from the fund.
Senator MILLIKIN. Mr. White, if I may make the suggestion—I
don't want to interrupt you unduly.
Mr. WHITE. That is perfectly all right, Senator.
Senator MILLIKIN. That is like saying to a bank that the value of
the collateral behind a loan only arises in its crucial form when the




74

BRETTON WOODS AGREEMENTS ACT

debtor is bankrupt and the note is no good. I mean we must have
a constant proof of the valuation of the collaterial behind the loan.
Mr. WHITE. That is correct, and I think you have stated it well, if
I may modify it in one respect, as to the collateral which a bank accepts,
the question of collateral becomes crucial only when it is necessary
to sell that collateral.
Senator MILLIKIN. Yes?
Mr. WHITE. The value of that collateral is constantly being valued.
Senator MILLIKIN. Yes.
Mr. WHITE. That is what I indicated in the very first provision, that
that collateral must be kept at an equal gold value, just the same as
if a bank took stock as collateral, and the stock fell in value, it would
say to its client, "You have to put in more of that stock."
Senator MILLIKIN. That all comes to my original inquiry, which I
assume you are coming to.
Mr. WHITE. That is right.
Senator MILLIKIN. Yes.
Mr. WHITE. The fund, then, has certain local currencies which it
may have to sell in order to get gold or certain other currency back.
Correct?
Senator MILLIKIN. That is right.
Mr. WHITE. One of the provisions in the fund requires—that is
page 47, Senator, section 6. Section 6 must be taken together with
certain other sections that I will point out.
It says that if and w^hen the bank finds it necessary to sell its collateral, either because, as I say, the member is withdrawing and owes the
fund gold or certain other currency, or is being expelled, then that
collateral has a preferred status. In the first place, if the fund sells
the collateral and does not receive the full value of what is due it,
then the country that is withdrawing agrees to make up the difference.
In order to make sure that that currency has value all the time,
all the member countries agree that if asked by the fund they will
buy that currency before they buy the currency of that country held
by anybody else. Inasmuch as every country is always dealing in
other currencies, and inasmuch as the amounts involved are small
relative to the total amount of transactions engaged in, what we in
effect have—and mark this, because it is important—what we in effect
have is a continual market for the collateral in question. The fund
may not at that time be able to get the value that was placed upon each
unit of currency, but if necessary it receives more units, and if those
are not enough the country agrees to give still more. Therefore,
if a country withdraws, the fund can suffer no loss.
Senator MILLIKIN. Mr. White, may I ask
Mr. WHITE. The only loss that the fund can suffer—and this is
what I referred to when I said there was one exception to the possibility of loss—the only loss which the fund can suffer is if a country
repudiates its agreement. If a member government breaks its written
pledge made to 40 other governments—if any country did that to the
remaining members of the fund it would become a virtual outlaw
so far as economic credit transactions are concerned, and it might
be equivalent to committing economic suicide so far as international
credit transactions are concerned.
Senator TOBEY. It would be an economic pariah.



BRETTON WOODS AGREEMENTS ACT

75

Mr. WHITE. It certainly would. What individual or what country
would extend credit to a country that repudiates an obligation of
that character. It isn't as though it is a war debt. It isn't as though
they said, "Well, you gave us this money because we were fighting
for you." Nothing like that. It is an obligation entered into the
open eyes and under conditions wThich are certainly reasonable.
Therefore I say that the risk of monetary loss that the United
States runs in its participation in the fund is almost negligible. Even
if country X did repudiate, the fund would lose some money, but the
loss of that money would be spread among the other members.
Senator MILLIKIN. Well, if country X withdrew, or, if you wish
to put it the other way, if country X repudiated, we would be in the
position of a bunch of endorsers on a note taking over the collateral
and realizing the best they could out of it.
Mr. WHITE. Yes; in which case
Senator MILLIKIN. Whereupon for the first time the currency of
country X would reach its own proper level in relation to other currencies.
Mr. WHITE. Well, the second part of your statement raises questions which are not apposite. I was directing my remarks exclusively
to an explanation of the risk of monetary loss.
Senator MILLIKIN. Yes.
Mr. WHITE. The rest deals with something else.
Senator TOBEY. Mr. White, on this analogy between loss and repudiation, and so forth, take an ordinary commercial loan, and the borrower repudiates. He has repudiated and lost caste with his bank,
as that is a more or less private transaction with the bank itself. And
that is the case of a defaulting nation. The one who acted in bad
faith is not only slapping down the United States but all 44 nations
comprising the brotherhood of nations, with all of whom it has to
work and do business; isn't that correct ?
Mr. WHITE. That is entirely correct. And the publicity that would
accompany that would be
Senator TOBEY. Prejudice among all nations.
Mr. WHITE. It would be a serious step and any minister of finance,
in my judgment, would prefer to default on any obligation that was
outstanding, rather than an obligation to an international institution,
of the kind we are discussing.
Senator MILLIKIN. Mr. Chairman, I should like tG suggest that you
cannot quite consider this problem in relation to an isolated country.
You might find a whole block of countries which through no desire
of their own found themselves in a position where they just could
not make good their obligations. And that is not at all imaginative.
Mr. WHITE. Senator Millikin
Senator MILLIKIN. It is entirely possible. If we did not have those
crucial problems, those crucial dangers ahead of us, perhaps there
would be no reason for the fund and for the bank.
Mr. WHITE. That is true of certain types of obligations. It may be
that during a period of depression a block of countries affected equally
by a depression of a major character may find themselves unable to
meet the ordinary kind of obligation. But we have made this a very
unusual kind of obligation. We have attempted to foresee every




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BRETTON WOODS AGREEMENTS ACT

danger of loss and blocked it. and we think we have done not a good
job, but an excellent job.
One of the provisions in the fund makes it possible—requires, in
fact—the fund to make arrangements with the country in question.
If a country withdraws—and it is only in the case of a withdrawal,
you see—while in the fund, all a member country has to pay is the
interest. We are speaking only of the case of repudiation. There
is nothing to force a country to repudiate, no economic conditions,
because if they find themselves in serious difficulties, the fund has
the authority, in the event a country withdraws, to make arrangements with the country allowing it time—1 year, 2 years, 3 years, or
4 years or more—in which to fulfill its obligations.
The obligation to the fund differs from the type that you are
speaking of in the sense that the country doesn't necessarily have
to raise the money. The money is usually already in the central bank
on deposit in the name of the fund. It differs also, of course, in that
the obligation is to an international organization representing most
of the governments. Further, it is an obligaton arising from financial aid given under conditions under which the terms of repayment
are clearly indicated and expected. Such difficulty as may arise for
repayment would result from the difficulty of transfer of payment,
but provisions to take care of this difficulty are included. The fund
owns currency on deposit with the central bank. To convert that
currency into gold or other currencies, the fund could sell that currency
on the exchange markets of the world. If the fund attempted to
liquidate it quickly, a drastic fall in the unit value of the currency
would result. The country whose currency is being sold would have
more to lose by such a fall in the value of its currency than the fund
because if the proceeds to the fund are not equal to the country's
debt to the fund the country must make good the difference. Moreover, rapid depreciation of a country's currency from such a cause
is bad for that country in many ways. That is one reason why a
" country would prefer to liquidate its obligation to the fund if reasonable time for repayment is allowed. The articles of agreement provide ample authority for granting a reasonable period of repayment.
Senator MILLIKIN. Mr. Chairman, yesterday in the discussion with
Secretary Acheson I suggested in my own opinion that, with the possible exception of one or two countries, every nation of continental
Europe is faced with one or two revolutions and counterrevolutions.
In the face of that pobability, if you are willing to go along with
me that it is a probability; or if you are willing to assume it, if you
won't go along with me; how do we protect this fund ?
Mr. WHITE. That is a perfectly good question, Senator. In the first
place, I would agree with you that it is a possibility. Whether it is a
probability would be a matter of judgment. I would be inclined even
to go along with you that it certainly is a probability with some countries ; and it is because of that probability, as Mr. Acheson pointed out,
that we are so concerned with doing everything we possibly can, even at
the risk of some monetary loss, to try to prevent it.
Senator MILLIKIN. It may have a block effect. It may affect a
dozen countries almost at once.
Mr. WHITE. Yes. Let us examine it.
Senator MILLIKIN. The collapse of one would be contagious



BRETTON WOODS AGREEMENTS ACT

77

Mr. WHITE. True.
Senator MILLIKIN. And go into another, and you might have an
almost simultaneous collapse of a dozen countries.
Mr. WHITE. That is quite true, and the seriousness of that situation
has led us to see what we could do to avoid it. The Bretton Woods
proposals will not avoid it wholly. They should make a contribution
toward that. But let is assume the conditions in your question.
Now, what would the fund lose as a consequence of that ? You know,
Senator—you have doubtless been at conferences, had some dealings
with, or have done some reading on, the responsibility and the task
of an incoming government, n new government that is the result of
a revolution. And you are talking about revolutions now.
Senator MILLIKIN. Yes.
Mr. WHITE. YOU are talking about an overturn and a complete
shift, and the question you are raising is, Will the incoming minister
of finance, as one of his first steps, repudiate the obligations to an
international organization made by his predecessors or the preceding
government ?
One of the difficulties that a newly established government, whether
it comes in as the result of a revolution or as the result of a war, or as
the result of a dubious democratic election, one of the first tasks is
financial reconstruction. The minister of finance knows he cannot
reconstruct his economy without assistance from the outside. One of
the last things that a minister of finance who has any sense of responsibility would do would be to repudiate his obligation where he
hopes to get some help. The new government would not want to
repudiate, they would want to meet their obligations. They would
want to keep their credit unimpaired; to meet the interest due on
foreign-held bonds of their countries, even at considerable trouble,
annoyance, and expense. They don't want to impair their credit.
A minister of finance would be the first to come to the various governments and say, "Gentlemen, there has been a change, it is true, but
we are going to stick by our financial obligations to this international
organization," because while they might not like to do it, it would be
very evident that if they didn't they would be creating serious obstacles
for themselves.
Senator MILLIKIN. I would suggest you have been giving a perfect
picture of responsible governments. Those governments—I am thinking of several of them in.Europe—have good credit. They can get
money from us and probably from Great Britain. They have reasonably stable governments. Those governments do not give us our problems. Our problems arise from governments that have not haii a history of responsible financial management and there are many of them
in Europe.
Mr. WHITE. Yes; there are a number of them that have operated
their financial policy
' Senator MILLIKIN. When I say that I am not calling any names.
Mr. WHITE. That is right. There are some, and we don't need to
mention any names, but, Senator, those are the very countries who
find themselves in most need of help, and they are the ones which are
most reluctant to kill the goose that lays the golden eggs they need
so badly.




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BRETTON WOODS AGREEMENTS ACT

The first concern of any Minister of Finance that comes into office
is credit, both domestic and foreign. That is what he operates on?
and for him to take a step which would prevent his being able to
undertake the necessary economic reconstruction wrould be, as I say,
suicide. I don't say it might not happen. There may be irresponsible Ministers. They may be economic morons. It may happen, and
if it does happen then the fund would suffer a loss, but bear in mind,
Senator, that those countries probably would be countries with small
quotas and the loss would be spread among others.
I don't say those countries would not repudiate their debts. I say
it is unlikely that many wTould do it, and that is a risk we should be
willing to take because the risk of not doing something is infinitely
greater, as you so well point out yourself.
Senator TAFT. Mr. White, may I suggest it seems to me you don't
get the full picture. What you would find is not repudiation of fund
obligations. What you face is general inability to pay the obligations. Each one of these countries that is in bad shape is going to
owe something to the fund, but that is just a small proportion of it.
They are going to have loans called.
If it is going to survive the fund is not going to hold up a country
that is not able to keep up its balance payments for sometime. So
that what you face is general bankruptcy in that country. Surely,
they would like to pay their fund debts and their other debts. But
take the case of Germany after World War I. You had the Dawes
plan, you had the Young plan, you had plans of receivership by wiiich
you tried to enable them to get on their feet, and you failed. Austria
was in the same position. They were not able to pay any of their
debts. There was a time when South American countries could not
pay any debts, because their balance was so bad during the depression.
Practically you could not get dollars in Brazil. They were not able
to buy there.
But the danger you face is not that they don't want to pay this debt.
It is that you are likely, unless you are willing to lend money indefiniately, to have a very considerable number of countries that are bankrupt, particularly if they lie down on the front and don't get their
balance payments back where they should be.
Mr. WHITE. Senator, what you say relates to certain historical
episodes. May I point out wherein those differed from what we are
talking about here, and why what has been true and what may be
true again for similar episodes is not true of th£ fund. You were
not here when I began, maybe it will orient you if I say I was directing my remarks to one point, namely, that the assets of the fund
are of a character which make almost negligible any monetary loss
that would occur to the fund.
Senator TAFT. Well, as far as the American taxpayers are concerned, there is $2,750,000,000 gone. It is no longer available to us.
We may some day get it back if the fund is dissolved, I agree, but
in the meantime we haven't got it.
Mr. WHITE. Senator, I am glad you put it that way because that
question seems to need clarification. If we put two billion seven in
the fund, it is true we don't use it, but that is precisely the case when
we get two billion seven in gold and put it into Fort Knox. We don't
use that.



BRETTON WOODS AGREEMENTS ACT

79

Senator TAFT. We can use it.
Mr. WHITE. We can use the international fund in exactly the same
way as we use the gold in our stabilization fund.
Senator TAFT. Wait a minute. We have to have a certain amount
of gold to back up reserves, don't we ?
Mr. WHITE. Yes.
Senator TAFT. And

we have just been forced to reduce the reserve
ratio from 40 to 25 percent. In order to maintain our currency we
have to have gold and this 2 billions is no longer available for that
purpose.
Mr. WHITE. Everything you say is true, but the point I am making
is this
Senator TAFT. Well, my point is this
Senator MURDOCH:. I think the witness ought to be given an opportunity once in a while to answer a question, Mr. Chairman. I must
insist on it.
Senator TAFT. With all due respect, I think it is a perfectly fair
and courteous exchange.
Mr. WHITE. Senator Taft and I understand each other.
Senator MURDOCK. That may be true, but there are others here who
want to understand it. If you and Senator Taft want to have a discussion to yourselves, that is up to you, but if we are going to have a
discussion beneficial to the group, once in a while the witness ought
to be permitted to answer a question. I say that with the utmost
respect for Senator Taft.
Senator TAFT. All right. Go ahead, Dr. White.
Mr. WHITE. When you put two billion seven in the fund, it is quite
true, as Senator Taft says, we don't use that. We don't use it because
we don't need it. In precisely the same way if England puts in a
billion and two sterling it does not- use it. If we put gold in Fort
Knox, if we receive gold in payment for goods because we are selling
more goods than we are buying, we get gold for it and we put that gold
into Fort Knox. ISTow the question of gold as a monetary base is a
separate question from what we are talking about here. I would be
glad to discuss it, but that is a separate question. The only use we have
for that gold is in international transactions.
The only use we have for that gold in international transactions is
when we want to buy foreign exchange. If we are buying more goods
than we are selling, we have to buy foreign exchange. It may be
sterling, it may be drachma, it may be pesos, it may be yuan. If we
reach that stage the central bank, in our case the Federal Keserve
Bank of New York, will sell gold in order to obtain that kind of foreign
exchange. In other words, it will take gold out of Fort Knox, figuratively speaking, and purchase necessary foreign exchange, but until
it needs that foreign exchange the gold remains in Fort Knox untouched.
Now, that is precisely what happens to the gold put in the fund. So
long as we do not have an adverse balance of payments, so long as
we do not have to buy more foreign exchange than we receive, so long
as that is true, we don't use our rights in the fund, and we don't use
the gold in Fort Knox. If we do.have an adverse balance of payments
then we can buy exchange from the fund in precisely the same way as




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BRETTON WOODS AGREEMENTS ACT

every other country does and in precisely the same way that we use
the gold in Fort Knox.
So that when you say the two billion seven we put in the fund has
no use, what you are in effect saying, and correctly saying, is that
gold we receive on balance has no use until we have an adverse balance
of payments.
Senator TAFT. Mr. White, I think that is a lot of language to cover
up the fact that as long as we have this gold we can do as we please
with it. We can use it for backing our bank reserves. We can buy
foreign exchange with it if we want to, but once it is in this fund we
cannot do a thing with it. We cannot get it out. It is entirely at the
discretion of a board we cannot control in any way. They dispose of
it as they see fit. It is just the same as if you say, I have $2,000 in the
bank. I can spend it or do whatever 1 want to with it. If I have $2,000
invested in a country like Germany or somewhere, that maybe I can
get back and maybe I cannot get back, I cannot do anything with it at
the moment.
Mr. WHITE. Senator, you have made a very effective statement. The
only trouble is that it contains one basio misstatement which makes
your conclusions unwarranted. The only things you can do with
the gold in Fort Knox are the two things which you name; either
you can leave it there and include it as a monetary base which we
are not concerned with for the moment, because that is a separate question. I would be glad to discuss it, but it is separate. Or you can
buy foreign exchange. That is precisely what you can do after you
have put dollars in the fund. You can buy foreign exchange with
your lpcal currency. That is what every country does.
Senator TAFT. If we have it here we can buy any foreign exchange
we want to. If we put it in the fund it goes automatically to any nation
that happens to want it, at the discretion of a board we cannot control.
Mr. WHITE. What foreign exchanges would you want to buy ? Remember, virtually all the foreign exchanges could be purchased from
the fund.
Senator TAFT. We might want to buy Russian exchange.
Mr. WHITE. Then you could buy it from the fund.
Senator TAFT. We could only buy a small portion of it.
Mr. WHITE. Russia will probably utilize its privilege to buy dollar
exchange, which means Russia will put more rubles in.
Senator TAFT. I mentioned Russia particularly to show I haven't
any prejudice against Russia. It is a theoretical discussion, but the
two things are fundamentally different. Unless we dispose of this
gold we can do wjiat we please with it here. You cannot say that
about the $2,750,000,000 of our money we put into a fund controlled
by a board which we do not control, that is the same thing as having
it here. It is not the same thing.
Mr. WHITE. Let me repeat what I thought I said and what I wish
to be said in my own words, and let us drop the point at that. That
the dollars we put in the fund represent our quota. That as a member, because we put those dollars in the fund, we can buy an additional
amount of foreign exchange in precisely the same way that any other
country can.
Now this is true, and possibly this is the point you may have in
mind, Senator, that the gold is immobilized until you want to use it.



BRETTON WOODS AGREEMENTS ACT

81

Senator TAFT. YOU have unsalable stock in a concern you don't control. You are a minority stockholder. It is not a marketable or liquid
value. You can put it on your books if you want to, but it is not the
same thing as having gold that you can do with as you please.
Mr. WHITE. I think we have probably explored that as far as is desirable. We just don't agree about that.
Senator TAFT. But you say it is just as good as if we had it at Fort
Knox.
Mr. WHITE, Let us say rather it is almost as good.
Senator TAFT. Suppose there is the full number of dollars in the
fund, there may be in the next 2 or 3 years, and they get all that gold
that way—they either get dollars and buy gold or at any rate, the gold
is gone, the net result being we have loaned the countries $2,750,000,000, so that the net result of the transaction is to translate gold into a
foreign loan.
Mr. WHITE. The last part is a reasonable statement, Senator, but
the fund owes the United States Government two billion and threequarters, which if the United States wished to withdraw, or if it were
forced to withdraw, it would receive out of the assets which were in
the fund.
Senator FULBRIGHT. May I ask one question that grew out of this
discussion? As I understand, you are giving this fund a preferred
status in each of the countries.
Mr. WHITE. That is correct.
Senator FULBRIGHT. Even though a country gets in difficulties and
even though other creditors who own its bonds, we will say, private
creditors who own bonds, the fund gets first call on the assets; is that
correct ?
Mr. WHITE. That is right.
Senator FULBRIGHT. SO that even though that might happen, if
there is anything at all, you get first call on it. If it goes competely
bad, if there is anybody who is paid off it will be the fund; is that
right?
Mr. WHITE. That is true. I wouldn't say if there is anything.
There must be something, because no matter how badly off a country
is it always sells goods.
Senator FULBRIGHT. I agree, but theoretically we will assume it
evaporates into thin air.
Senator TOBEY. And isn't it also true that this money which we put
in must always be considered in the light of the objective?
Mr. WHITE. Of course. After all, what is it that we want out of this
fund ? We don't want the interest we make on putting our money in.
You see, we would get some interest on the fund and the countries that
do not resort to the fund are the ones that get the merest. The others
pay the interest. But that is not what we are interested in. We are
taking some risks, Senator, there is no question about it.
We are going to quite a bit of trouble to get into this fund and we
certainly are not in it for any profit. We have a stabilization fund
which the Treasury has been operating for 7 or 8 years. It has made
quite a lot of profit during those years, but it was not set up to make
profit. This is a much larger venture, more comprehensive in scope,
but the theory is somewhat similar. That is why we are going into it.




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BRETTON WOODS AGREEMENTS ACT

Senator TAFT. I am not attacking that argument. I was only trying
to eliminate the general theory that this isn't going to cost us anything.
I think the other argument is the real question, but I think we ought to
admit that it is equivalent to loaning to foreign nations roughly around
$6,000,000,000. The question is should we do that ?
Mr. WHITE. Well, Senator, if you put it that way, I think I would
agree. In other words the $2,750,000,000 put in may be a loan, the
only thing we receive for that loan is interest.
Senator TAFT. Well, do we get interest or not ?
Mr. WHITE. We get interest in this sense, Senator: The country that
borrows exchange has to pay interest on what it borrows.
Senator TAFT. Could it be declared as a dividend ?
Mr. WHITE. A dividend can be declared. If a dividend is distributed the country whose currency has been purchased gets the dividend
in proportionate amount.
Senator TAFT. Well, it is most unlikely that a dividend would be
declared. Wouldn't you want to build up a reserve ?
Mr. WHITE. In the bank you would, that is true, but not likely in the
fund. I would be delighted to draw a balance sheet at the end of 10
years and I think you would find we would have substantial interest
in return which would probably be equivalent to the cost of borrowing
our money, but it is true that it could be regarded as a sort of loan. I
think you have stated it succinctly in that one statement.
Senator TAFT. AS to Senator Fulbright's theory of a prior lien, I
don't quite see that. For instance, country A has this interest in the
fund. They probably owe four or five times that much. If country
A, which is Rumania, we will say—not for the record—owes a lot of
money to country B which is Russia, also not for the record, it seems
to me there might be circumstances where they would be much more
anxious to pay their debt to B than to the fund, relying on B to keep
up their balance of payments. It is probably much more important
for them to keep in good standing with B than it is with the fund.
If they are thrown out of the fund, too bad, but somebody else is going
to take care of them. I don't quite see the point that there is any
prior claim on the fund.
Mr. WHITE. Rumania may not wish to make it a prior claim, but
she has already done so by her initial agreement for participation
in the fund. The money she owes Russia, in the first place, Russia
does not have on deposit in Rumania. That is not likely if it is
a debt, but she has money on deposit that belongs to the fund.
In the second place, and more important, Rumania has already
agreed that there will be no strings on that, and that the fund can
sell it to any market of the world that needs Rumanian lei. More than
that, the member countries have agreed if they need any Rumanian
currency they will buy it first from the fund. I explained that before
you came in.
Senator TAFT. I maintain the same thing is true. They can take
a chance on their leis around the world, but they have to pay the
Russian debt.
Senator FULBRIGHT. All of these other nations besides Russia are
interested and they would all be interested in this fund. I think all




BRETTON WOODS AGREEMENTS ACT

83

the pressure of economic relations of other countries would be in favor
of the fund.
Senator MILLIKIN. Mr. White, wouldn't it be correct to say that
the lien applies to the fund of the debtor countries that are with the
fund ? That is the sole extent of the lien.
Mr. WHITE. Yes.
Senator MILLIKIN.

Beyond that there is, I believe, under the paragraph you cited, there is an obligation on a country that it has to
make good deficits.
Mr. WHITE. That is correct.
Senator MILLIKIN. But it is not an enforceable obligation, is it?
Mr. WHITE. None of these obligations is enforceable. You cannot
enforce any of these obligations in the sense you can go in with an
army and collect your debts. Final enforcement depends on the government's word. If a government repudiates it, as it might, I say
that is a risk you take.
Senator MILLIKIN. I do not say it would not be made good, but it is
not enforceable in the sense you take a judgment out and put it in the
hands of a sheriff to collect some asset.
Mr. WHITE. That is correct. It is not enforceable in that way.
Senator TAFT. YOU spoke of these Rumanian leis which would be
scattered around the world. Don't I understand under the act itself
those might be Rumanian I O U's ?
Mr. WHITE. I don't think I understand your question.
Senator TAFT. Cannot I O U's be substituted ?
Mr. WHITE. The Rumanian currency, which is in the fund, can be
substituted.
Senator TAFT. It can be withdrawn and put in Rumanian I O U's ?
Mr. WHITE. In Rumanian Government I O U's.
Senator FULBRIGHT. One other question. As between the bank
which seems to receive the approval of the banking association, and
the fund, I would gather that this is less likely to lose money than
a loan made by the bank.
Mr. WHITE. That is entirely true and that is the conclusion of, I
think, almost every banker and economist who understands the fund.
Some of these safeguard provisions are in the appendix. We put it in
the appendix because we didn't want to lengthen the document and a
great many people never read the appendix, but it is quite true that the
risk of monetary loss is much less in the fund than in the bank.
Senator FULBRIGHT. The arguments have been just the opposite in
most of the things I have read.
Mr. WHITE. That is true.
Mr. Chairman, I would like to say something off the record.
The CHAIRMAN. This is off the record.
(There was discussion off the record.)
Senator MURDOCK. Mr. Chairman, I would like to ask this question^
going back to the very interesting question of Senator Millikin where
he refers to revolutions and counterrevolutions and that it may affect
a whole bloc of countries rather than just one. Isn't the very purpose
of your Bretton Woods agreement an economic deterrent to those very
conditions ?




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BRETTON WOODS AGREEMENTS ACT

Mr. WHITE. It is precisely for that reason we are interested in going
into this. If the world looked to us as it looked to many of us in 1925,
1926, and 1927, we would not be interested in undertaking any such
major international arrangements. It is because what we see ahead of
us is fraught with such great danger to our economic system and to our
welfare and world peace and world security that we are taking the
trouble of trying to devise institutions and that we also are willing
to take the risk of monetary loss.
Senator TOBEY. It is because the need is indicated.
Mr. WHITE. That is correct.
Senator MURDOCK. We have lost a lot of money without such an
institution and the very reason I see for such an institution is that we
take less risk with it, even monetary risk, than we take without it.
Mr. WHITE. I agree with that.
Senator MILLIKIN. .Mr. White, I think you have said this about three
times and I want to put it in my own groove.
Mr. WHITE. Did I repeat myself unnecessarily ?
Senator MILLIKIN. NO. I was glad to hear you say it, and you
said it very plainly, but I would like to put it in my own groove.
Do I understand it is logical that if one concludes that the fund is
unsound and undesirable, that he must also reach the conclusion that
the bank is likewise unsound and undesirable ?
Mr. WHITE. NO ; I shouldn't think so, Senator, because the fund
and the bank are different institutions, designed for different purposes and they perform different functions. One could say this,
Senator, that either standing alone undertakes greater risks of, I won't
say failure, but is able to do less effective work than both standing
together. If the fund should fail the risks undertaken by the bank
would increase, but it doesn't necessarily mean that the bank would
likewise fail.
Senator MILLIKIN. SO if the determining feature in reaching a
conclusion on this subject swings around the degree of risk, it follows that if we conclude that the risk is too great in the fund, we
must conclude it is too great in the bank.
Mr. WHITE. That is excellent logic.
Senator TAFT. Mr. White, the next thing that interests me you say
we make an agreement with Mexico that we will give them dollars
for pesos. You don't mean an unlimited amount, do you ?
Mr. WHITE. NO ; there is a maximum of 40 million.
Senator TAFT. $4(1,000,000. Isn't that equivalent to a temporary
loan?
Mr. WHITE. It is equivalent to quota in the fund.
Senator TAFT. Yes; but I still don't see why if they buy $40,000,000
in pesos and we have 40,000,000 pesos that temporarily it is not <
a
loan, practically.
Mr. WHITE. Oh, yes, you may call it a loan if they buy dollars under
the agreement.
Senator TAFT. Haven't we been financing Mexico in the last 2 or 3
years in different ways ?
Mr. WHITE. I dare say we have given some assistance to the Mexicans.




BRETTON WOODS AGREEMENTS ACT

85

Senator TAFT. Didn't we practically loan them the money to pay
the oil companies for the oil wells they confiscated ?
Mr. WHITE. I don't remember any loan we gave Mexico for that
purpose. You might be interested in this fact. Senator, we had a
stabilization arrangement with Mexico over the past few years which
they had the privilege of availing themselves of, and they didn't avail
themselves of that privilege. There is no knowing at what point, if
at all, they will buy any dollars with the pesos they have, so when
you speak of a loan to Mexico, I know we made some loans for some
small productive purpose, but I don't remember just what they were.
Senator TAFT. HOW about lend-lease. Do you remember what they
have gotten under lend-lease?
Mr. WHITE. NO ; I don't, I know we have given them some help.
Senator TAFT. Isn't it a fact that we have been pouring money
into Mexico right through the war, one way and another ?
Mr. WHITE. Possibly.
Senator TAFT. Going back to the question I asked Mr. Acheson
yesterday, I knew I had somewhere this idea about Russia having
some special relation to this fund, in regard to drawing down 25
percent of their quota every year, $300,000,000 a year. Mr. Edward
E. Brown, who, of course, is a delegate in support of the thing,
wrote an article in February and that is where I got the idea. It is
not quite what I had in mind, but I will read it to you and ask you
to comment on it:
Russia, with a complete system of state trade, does not require credit for
strictly stabilization purposes, and it may be admitted that Russia will probably
use up her quota in the first few years of the fund's existence to pay for imported
capital goods necessary for her economic reconstruction.

So that I take it Mr. Brown had the idea, certainly, as a delegate,
that there was some agreement that Eussia was not to be held to the
extreme terms of this fund, but was to be able to draw down 25 percent of their quota for reconstruction. Is that correct ?
Senator TOBEY. Mr. Brown is right here.
Mr. WHITE. Yes. He can speak for himself, and will.
Senator TAFT. I only bring Mr. Brown in because that was my
excuse. I didn't think I had invented the thing yesterday, and I
was somewhat shaken by Mr. Acheson's flat denial of any knowledge
of it. That is why I went back and looked it up.
Mr. WHITE. I think you also included in your question, unfortunately, something else.
Senator TAFT. A special agreement.
Mr. WHITE. I think you mentioned the fact there was an agreement with respect to Russia. One of the key words is "stabilization."
You see, a stabilization operation is a very special term. It doesn't
mean a loan. If it meant a loan, we would call it a loan. It bears
certain close resemblances to a loan and some people refer to it as
a loan, which is all right if they understand what it is, but if somebodyin the Treasury said,""We just made a loan to Mexico of $40,000,000,"
we w^ould not understand it.
Senator TAFT. I understand that.
Mr. WHITE. I would like to take up the meaning of the word "stabilization" and how it relates to Russia's operations with the fund.




86

BRETTON WOODS AGREEMENTS ACT

Now, stabilization is a transaction which is designed to meet a
country's special need for foreign exchange. When a country needs
foreign exchange in excess of what it can easily obtain through its
exports and through the sale of gold, then it has to acquire it in some
other way. If it acquires it through what we call a stabilization
operation and you refer to as a loan—and you can, if you like—then
it is a stabilization operation. What is its purpose? What is its
cause ? Why do we have stabilization operations ? Because in every
country there are emergency situations; there are developments which
make it necessary for a country to have more foreign exchange than
it can easily get. How does that arise ? That arises in special ways.
If a country like Brazil, for instance, has a failure in its coffee crop or
its cotton crop, its two principal exports, its cotton and coffee may
drop in price and not yield enough foreign exchange. That is one
illustration.
A second illustration is if the country is selling to other countries
who are experiencing a depression, they decrease their impact and
the impact falls on one of several countries which then find themselves
unable to get enough foreign exchange.
Another illustration would be if a country is experiencing a severe
decline in its gold reserve and either through flight of capital or because it has been utilizing it in preceding years more rapidly than
it should have, or because there was a capital inflow which suddenly
ceased or because—and this is important—because of the most serious
emergency of all, a war. When war strikes a country and devastates
it, as it has a number of the European countries, it disrupts its balance
of payments after the war.
In the first place, its productivity capacity is so curtailed it cannot
develop an export market quickly.
Senator TAFT. It seems to me what you say is perfectly true, but
doesn't it lead to the conclusion you cannot separate stabilization from
every other obligation of a country involved; that the only possible
difference is between short-term help and long-term help, emergency
help and permanent help ?
Mr. WHITE. The most serious emergency that a country can experience is war. It reduces exports while import needs are greater than
ever, so a country finds itself with declining f oreign-echange resources
and greatly expanded needs. The stabilization operation is precisely
what a country of that kind needs. Russia finds itself in need of
foreign exchange and it is going to get it in many ways, as many
ways as she can. I dare say Russia will probably be eager to obtain
credits from concerns like Baldwin Locomotive, General Electric, and
General Motors—I dare say she will also try to borrow money from
mank investors. I dare say she will attempt to get credit from Government organizations in England and the United States. I presume
she' will use whatever avenues are available to he to get all the shortterm credit, medium-term credit, and long-term credit she can, all
the avenues of foreign exchange that would be available to her including her quota in the International Fund, she will come to the
International Fund and she will obtain foreign exchange. How much,
I don't know. It depends on what she gets from the other sources.




BRETTON WOODS AGREEMENTS ACT

87

Senator TAFT. DO you agree with Mr. Brown's statement?
Mr. WHITE. May I proceed?
We know that she will come to the fund. How much she will want,
I don't know. It is not unlikely she may take her maximum quota.
The alternative to that, which is the same alternative which exists
with all countries, and which we wish to avoid, the alternative to
her getting foreign exchange is that she will adopt one of two, or
both, procedures. One, she will cut down her imports, which is another way of saying we will sell less and everybody will sell less.
Secondly, she will try to increase her exports and if necessary
dump on the market whatever goods she has. She could resort to all
kinds of arrangements such as Germany and Japan resorted to.
Senator TAFT. YOU say so many things that I disagree with that I
cannot keep up with you and cannot remember the things you say, but
it seems to me the argument you are now making is simply the argument that if we don't lend every country a lot of money, somehow or
other they are going to stop international trade.
Mr. WHITE. That is not the argument I am making.
Senator TAFT. Why, yes; you are stating that if we don't give
Kussia these credits they are going to fold up and dump a lot of stuff
on our markets. Therefore we have to lend them a lot of money.
Mr. WHITE. I don't think I said that.
Senator TAFT. Mr. Acheson said yesterday that there was a restriction on buying the curency of another member of the fund, and it
reads as follows:
The member desiring to purchase the currency represents that it is presently
needed for making in that currency payments which are consistent with the
provisions of this agreement.

I suggest what^you are saying now entirely eliminates the force of
this provision ?
Mr. WHITE. I'm sorry I cannot agree.
Senator TAFT. Well, isn't that the necessary conclusion from what
you have been saying about war demands and everything being within
the purposes of the fund ?
Mr. WHITE. NO. May I expand a bit on that ? Before I do, may
I digress to Senator Millikin's question ?
I haven't returned to the point you so kindly postponed. I am
hoping I will have time to answer all these questions.
The CHAIRMAN. YOU probably will have to be here tomorrow.
Senator TAFT. Oh, I haven't even begun to question Mr. White. I
have a lot of other questions.
The CHAIRMAN. Senator, why don't you spend an evening with Mr.
White?
Senator TAFT. GO ahead, Mr. White. There are many technical
questions and those are questions which Mr. White is very competent
to answer, but I want to know why the conclusion you make isn't
that practically any need for money today is within the purposes of
the fund and therefore why that doesn't practically nullify this supposed restriction on the granting of money out of the fund to every
nation that wants it.
Mr. WHITE. May I suggest some needs that would not be in accord
with that?




88

BRETTON WOODS AGREEMENTS ACT

Senator TAFT. Yes.
Mr. WHITE. Supposing, using the illustration you just used as
relevant to some other discussion yesterday, supposing England
wanted to buy dollars from the fund in order to permit India to
withdraw some of her balances in the form of dollars.
Senator TAFT. Why not? Here is England, hot ravaged by war,
but trying to borrow money from India to put themselves in an
absolutely indefensible position; why isn't the payment of indirect
balances absolutely necessary ?
Mr. WHITE. They connot purchase exchange for that purpose. I
would be glad to go into the reasons if you want me to take the time,
but there is no question as to the fact that it is explicitly excluded. It
would be contrary to the purposes of the fund.
Senator TAFT. I see no difference between what you said England
cannot do and Russia can do.
Mr. WHITE. YOU are not questioning the fact, you are questioning
the wisdom of excluding capital transactions.
Senator TAFT. I am really trying to show there is no difference,
that in one form or another a loan to a country is a loan to a government, and the idea you can separate stabilization and any other loans,
except in volume, just doesn't exist. It all comes out of the same pot
in the end.
Mr. WHITE. In other words, you don't think.it makes any difference
what a country uses the fund for. In the same way you would say that
if an individual comes to a banker and says, "I want to borrow
$10,000," the banker would say, "Don't tell me what you are going to
use it for. The only question I have to ask is, Do I want to lend it?"
I think you will find the banker would ask, if he is a competent banker,
"What do you want this money for?" There are certain uses that
are excluded and the reasons for their exclusion are valid, and I would
be glad to discuss them with you.
Senator TAFT. Let me ask you this question: Suppose India says
we want this money to buy pounds, representing that it is presently
needed for making payment in that currency, and they buy all the
pounds they can buy; 6 months later they find that has badly upset
the pound and the pound is struggling along, and they need their
currency stabilized from the fund. How can you refuse them ? They
are only paying their debts.
Mr. WHITE. We foresaw that possibility and took care of it by
another provision. If a member country pursues a policy which
will subsequently make her dependence upon the fund greater than
reasonable, if, for example, prior export of capital is responsible for
depletion of her reserves, that would be cause for the fund to say to
that country, "I am sorry, but you have depleted your reserves for
this other purpose. You are defeating one of the purposes of the
fund." A country must not act in a way that violates any one of
the purposes of the fund. That is w^hy Mr. Acheson, I think, so well
pointed out that we have one of the most powerful protective clauses
that any lawyer could draft to enable the directors of the fund to
protect its resources.
Senator TAFT. Well, I don't agree with that. I don't think it could
be weaker or more general.




BRETTON WOODS AGREEMENTS ACT

89

The CHAIRMAN. Mr. Witness, we are required now over there on
the floor to put our names on the roll call. We are going to meet
tomorrow at 10: 30.
Mr. WHITE. Would it not be possible to go on this afternoon ?
The CHAIRMAN. NO; we cannot. I have discovered that. I think
next week we will be able to, but while this legislation is pending the
Senators have told me they have to be on the floor.
Mr. WHITE. IS it possible to appoint a subcommittee of Senator
Taft and myself to explore this ?
The CHAIRMAN. Why don't you have lunch together? We will
adjourn now until 10: 30 tomorrow morning.
(Whereupon, at 12:25 p. m., an adjournment was taken until
tomorrow, Friday, June 15,1945, at 10: 30 a. m.)







BRETTON WOODS AGREEMENTS ACT
FRIDAY, JUNE 15, 1945
UNITED STATES SENATE,
COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C.
The committee met at 10:30 a. m., pursuant to adjournment on
Thursday, June 14,1945, in room 301, Senate Office Building, Senator
Robert F. Wagner (chairman) presiding.
Present: Senators Wagner (chairman), Barkley, Radcliffe, Murdock, Fulbright, Tobey, Taft, Butler, and Millikin.
The CHAIRMAN. The committee will come to order. We are still
hearing from the distinguished Assistant Secretary of the Treasury,
Mr. White.
Mr. WHITE. Mr. Chairman, Mr. Ned Brown, of Chicago, is here,
and, as you know, he is very busy. We would not like to keep him in
Washington idle any longer than is necessary. Would it be agreeable with your committee if I retire in his favor and then as soon as
he is through I will be on the stand? I will be here should he get
through before the end of the session, or whenever the next session
is held.
The CHAIRMAN. I S that agreeable with the committee ?
Very well. Mr. Brown.
STATEMENT OF EDWARD E. BROWN, CHAIRMAN OP THE BOARD,
FIRST NATIONAL BANK, CHICAGO, ILL.
Mr. BROWN. Mr. Chairman, my name is Edward E. Brown. I am
chairman of the board of the First National Bank of Chicago. I was
one of the delegates, as I think all of the members of the committee
know, on behalf of the United States, at Bretton Woods.
Prior to that time I had been at Atlantic City where the experts of
some 18 nations met for about a month. Before that I had been
in the Treasury reviewing the record of some of the bilateral discussions which had taken place between representatives of our Government, the Treasury, State, Commerce, and Federal Reserve participating in them, and various other governments.
I have no prepared statement for your committee. Beginning 2
or 3 years before Bretton Woods there was a general recognition
that at the end of the war in the case of a great many countries, both
those devastated in the war and other countries whose economy had
been seriously disrupted by the war, but which had not been physically
devastated, that they could not maintain currency systems without
some outside assistance. The bilateral discussions revealed a general agreement amongst the various nations that it was desirable to
75673—45



7

91

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BRETTON WOODS AGREEMENTS ACT

set up some sort of an international organization to assist in the
stabilization of currencies, and make it more feasible for countries
to settle their balances on current account.
It was also felt that after the experience of the last war and the
experience of the 1930's, that private lending on a large scale for
reconstruction and for the development of undeveloped countries
could not go forward except under some form of a guarantee, either
of our Government or of an international organization; and that it
was desirable to set up an international bank for the purpose of encouraging long-term loans by the citizens of countries which were in a
position to export capital to countries which could use it advantageously.
Out of the bilateral discussions and out of the conference at Bretton
Woods came the two agreements that are before you. The first relating to the international monetary fund is essentially a credit organization—a mutual credit organization.
Each country is assigned a quota. It puts up the amount of its
quota in gold or its own currency, principally in its own currency,
and in return it receives the right—the conditional right subject to
various limitations and restrictions to obtain credit from the fund
in the currencies of other countries up to the amount of its quota.
The Bank for Reconstruction and Development is based upon the
principle that the export of capital by a country in a position to export
it to countries that can advantageously use, it, whose productive
capacity is increased by getting it, which has reasonable or good
prospects of being able to return it, is advantageous not only to the
country that loans the money and the country that receives it, but to
all other trading and manufacturing countries of the world, because
it promotes a high level of international trade.
It was felt that after the experience of the people of the United
States with foreign loans in the twenties and thirties and the many defaults that occurred, the people of the United States would not loan
money abroad except under some form of a governmental guaranty.
That guaranty could be given by the United States by the making of
a loan through some organization like the Export-Import Bank, or it
could be given by an international organization in which the risk
would be shared by all the principal trading countries.
Senator TAFT. Did you say you didn't think it was possible to
develop the export of capital without Government guaranty?
Mr. BROWN. Not on any large scale without some sort of guaranty,
Senator. While we could do it throught the Export-Import Bank, or
some other similar organization, since all the other countries of the
world would benefit by the export of the capital from the United
States and from other countries, it was thought only fair that all the
countries should share in the risk involved in the extension of such
long-term credit. The bank has met with general acceptance in this
country and unless the committee wishes me to discuss it, which I shall
be glad to do, I will direct my remarks to the fund.
Senator TAFT. I think it might be a good time to discuss the bank
and the policy that is involved in it. That is, if that is agreeable to
the chairman—before he goes on to the fund, if he has time to do
that.
The CHAIRMAN. Yes.



BRETTON WOODS AGREEMENTS ACT

93

Senator TAFT. We haven't discussed the bank yet. Do I understand
you feel this export of capital is an essential feature of postwar
American policy for the benefit and general improvement of the
world ?
Mr. BROWN. I think it is highly desirable both for the benefit of
the world as a whole and for the benefit of our American economy.
Senator TAFT. Would you agree that this Colmer Postwar Economic Keport in the House of Kepresentatives, which says, I think, as
I remember it, that they believe that we should invest abroad at the
rate of—I think it was two or three billion dollars a year for the next—
well, 10 years ahead, so far as I can see ?
Mr. BROWN. Personally I doubt if our total export of capital should
reach that sum. I was one of those who believed that the export of
capital if it is made at too great a rate to be in harmony with the
economy of this country and in harmony with the economy of the
countries receiving it, that it can create debts which cannot possibly
be serviced. I think it is difficult to say or predict how many dollars
we should export on an average. I have heard statements that exports of capital of as much as five or ten billion dollars a year should
be made. I think that is too much. Whether two or three billion
dollars is too much, I don't know. If.you ask my own personal opinion, Senator, I would say that probably from a billion to two billion
dollars a year would be more nearly a desirable amount.
Senator TAFT. This is the statement of this Colmer committee,
which, I assume, is in accord with the general Treasury policy:
If these measures are adopted, If the United States reaches a satisfactory
solution to its postwar problems, production loans for the sum of two or three
billion dollars may be made for some time after the war. Lending of this
magnitude would have a lasting benefit both to the United States and the
rest of the world.

Then in another place they say, "After a period of 20 or 30 years of
making foreign loans a*nd direct foreign investments, the position of
the United States will be similar to that of the United Kingdom before
the present war." Do you think that is an excessive amount of foreign
loans and investment, or not? You say 5 billion a year is too much.
Do you think this is reasonable?
Mr. BROWN. I would say it was roughly reasonable.
Senator TAFT. SO that would require a loan policy that was beyond
anything contemplated in this International Bank, wouldn't it?
Mr. BROWN. I don't think so.
Senator TAFT. AS I understand it the International Bank is limited
to three billions of dollars, approximately, in their lending policy unless we put in more.
Mr. BROWN. NO. The Bank will operate primarily by guaranteeing
loans, and it cannot make or guarantee loans in excess of its unimpaired capital. Its capital is approximately $10,000,000,000, so it
could guarantee loans up to 10,000,000,000 in dollars and those loans
could be floated in the United States.
Senator TAFT. I didn't understand that. Do you mean to say that
American banks could make loans up to $10,000,000,000 and have them
guaranteed by the bank ?
Mr. BROWN. Yes.
Senator TAFT. But

if loans are made in dollars, they are subject to
the veto of our representative on the bank, are they ?



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BRETTON WOODS AGREEMENTS ACT

Mr. BROWN. They are.
Senator TAFT. Although we only put $3,000,000,000 in, they can
loan 10 billion?
Mr. BROWN. Yes.
Senator TAFT. HOW

do they get the other $7,000,000,000 in case they
are called upon to pay it? Because the other 7 billion is in pounds
and Czechoslovakian money and all sorts of money—how do they get
the other 7 billion to enable them to make good on any such guaranty ?
Mr. BROWN. Well, assuming 50 percent of your loans are defaulted,
that would be $5,000,000,000 which would mean that to make up the
$10,000,000,000 guarantee they would have to collect $5,000,000,000
from the subscriptions of various counties.
Senator TAFT. In gold or dollars?
Mr. BROWN. In gold or dollars. The subscriptions have to be paid
in gold or in the currency in which the guaranty loan is made—we
wilt assume dollars.
Now, take the United States contribution of $3,000,000,000 and take
Canada's and Cuba's, and the United Kingdom, the Scandinavian
countries, Holland and Belgium, it is inconceivable to me that you
would get a situation where even if the whole $10,000,000,000 were
guaranteed that the guaranty of the bank would not be good. I think
the bank is a highly conservative institution in that respect and there
was a great deal of criticism of it at Bretton Woods in that instead of
liaving power to make or guarantee loans for only $10,000,000,000,
that is, only equal to the amount of its unimpaired capital, it should
have authority to do that for two or three or five times that amount.
Finally a fight was made that it should have the right to guarantee up
to one and one-half times it capital, but the more conservative view
prevailed.
Senator TAFT. DO you think our representative in the Treasury
would be likely to approve loans in dollars of over $3,000,000,000?
Mr. BROWN. Over a period of years; yes. I should say that our representative would not approve loans which would represent an export
of capital to a degree that would injuriously affect the economy of the
United States. If we were in a boom era and prices were high, you
might increase the boom by foreign lending and reduce at the same
time the supply of capital available in this country. Under certain
circumstances I think they would tend to hold down the amount of
dollar loans they would approve very materially.
If on the other hand conditions in this country were such that business was slack and that it was highly desirable that more manufacturing should take place, they might very well adopt a more liberal policy.
Senator TAFT. DO you favor the making of foreign loans by the Government to stimulate manufacturing? Do you think that is a sound
economic policy ?
Mr. BROWN. I don't know what you mean, Senator, by this question. These loans are to be made by private individuals. They are
to be guaranteed by an international organization, of which it is true,
we have about 30 percent, but in which all the other governments of
the world are met, and, I think that it is sound business for such an institution, and I think it is sound business for the Export-Import Bank
to guarantee foreign loans.
Senator TAFT. I understand that, but I was questioning whether—
you stated one of the reasons for making it was if we didn't have



BRETTON WOODS AGREEMENTS ACT

95

enough manufacturing in this country—to stimulate manufacturing.
Mr. BROWN. I didn't state that, Senator.
Senator TAFT. Then I misunderstood your statement. That is what
I wanted to clear up.
Mr. BROWN. YOU asked me if I remember it, whether I thought that
the representative of the United States on the bank would approve
dollar loans to the extent of $10,000,000,000. I said that I thought
he might, that the amount of loans he would approve in any one year
would be governed in part by the conditions of employment and prosperity in this country. I think that is correct.
Senator BARKLEY. Eight there, I would like to ask, in any policy
of loaning money, direct loans by the Government of the United States
to stimulate employment, loaning to foreign countries would be wholly
outside of this organization—this does not contemplate direct Government loans to other people, does it ?
Mr. BROWN. It does not.
Senator BARKLEY. It is a guaranty by this bank of loans made by
private institutions ?
Mr. BROWN. Yes.
Senator BARKLEY.

We might assume that they made loans up to
$10,000,000,000. You certainly could not assume that all of them
were going to default and the whole ten billions would go into the
sinkhole. The amount of the liability of the guaranty—the ultimate
amount of the guaranty would depend on whether any of them defaulted. If none of them defaulted, of course, the capital would remain unimpaired.
Mr. BROWN. That is true.
Senator TAFT. Am I mistaken ? Isn't the bank authorized to make
direct loans if it wants to ?
Mr. BROWN. The bank is authorized to make direct loans out of its
own capital paid in. It is also authorized to borrow money and the
amount of its borrowings and its guaranties cannot exceed its unimpaired capital. If it loans money in dollars it must borrow in dollars.
In other words, it cannot borrow dollars and make loans that are
not repayable in dollars. In other words, it has got to keep a covered
position in dollars.
Senator TAFT. What I meant is that it may make direct loans or
it may guarantee other people's loans. It cannot do one thing in
greater volume than the other. It cannot call in this capital.
Mr. BROWN. It cannot call in its capital except for the purpose of
meeting defaults on loans beyond the initial 20 percent which is paid
in. It can only call the additional 80 percent for the purpose of
meeting losses.
Senator TAFT. SO it does contemplate primarily a guarantee system.
Mr. BROWN. Yes.
Senator TAFT. Not

direct loans—the direct loaning power is more
or less limited; is that correct ?
Mr. BROWN. If it found it more advantageous to sell its debentures,
for instance, for dollars, it could, use the proceeds of those debentures
for loans equal to the amount of dollars it borrows.
Senator TAFT. Having called in the 20 percent, do you think it
likely, supposing the bank is in operation successfully, is it likely it
would try to sell debentures in the United States too, in order to



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BRETTON WOODS AGREEMENTS ACT

raise more money for direct loans, or not ? What do you think is the
probability of the policy ?
Mr. BROWN. I think it is quite probable that it might at some time
do it. If there were a number of small loans, rather than guaranteeing loans to Guatemala, or some other country, of $500,000, it might
lump a number of loans and make a sale of a five or ten or fifty million
dollar issue of debentures. I think the probability is that the greater
part of its operations will be by guaranteeing loans of other countries,
but I think it will probably also sell a certain amount of debentures.
It cannot sell debentures payable in dollars or float debentures payable
in any other currency in the United States without the consent of the
United States representative on the Board and it has to maintain a
balanced position as to any obligations it incurs and the loans repayable to it, so that if it loans dollars it would have loans equal the
amount of its own obligations repayable in dollars.
Senator TAFT. Debentures like that would be pretty much sought
after in the United States, probably, wouldn't it? I mean it would
be a pretty good security.
Mr. BROWN. I should say that with the conservative limitations put
upon the bank, in the present money market a loan guaranteed by
the bank, or a debenture of the bank, would probably sell on a 3-percent
basis. That is a matter of judgment and future money market.
Senator TAFT. DO you favor in addition to this bank, the enlargement of the Export-Import Bank ? Would you contemplate that that
bank also would in effect make or guarantee permanent investments
in foreign countries?
Mr. BROWN. Did I state I favored enlargement of the Export-Import Bank?
Senator TAFT. I though you mentioned it. I don't know. You
mentioned it as being a supplement to the International Bank;
whether you meant to enlarge its capital, or not, I wouldn't say. But
its present capital is only $750,000,000 and is pretty much used up, so
I assume that it would have to be enlarged.
Mr. BROWN. YOU ask me the question if I do favor the enlargement
of the Export-Import Bank, and my answer would be yes, but when
you put a statement into my mouth that I didn't make, I don't like
that.
Senator TAFT. Well, that was not intentional. I am sorry. I
though that was in accord with the general policy that has been
advocated of increasing it from $750,000,000 to $2,200,000,000, or
some point that has not been decided on. However, what I wanted
to ask was whether you thought part of this foreign investment
should be made through the Export-Import Bank as well as what is
made through the International Bank.
Mr. BROWN. I think there are certain types of transactions which
should be made through the Export-Import Bank rather than through
the International Bank for Reconstruction and Development.
Senator TAFT. What are those? We will probably have that bill
before us? What are the types of investments to be made in that
way?
Mr. BROWN. I should say for instance, if Mexico wanted to import a considerable amount of American agricultural machinery for
the purpose of reselling it to its agricultural population and that it
would have to take the notes of its farmers payable over 2 or 3 years,



BRETTON WOODS AGREEMENTS ACT

97

much as agricultural implement dealers give time to farmers in this
country on the purchase of agricultural implements, that such a loan
with the term running 2, 3, 4, or 5 years, the proceeds of which were
to be used exclusively for the purchase of American manufactured
goods is the sort of an operation which ought to be taken care of by
the Export-Import Bank.
Senator TOBEY. In other words, short-term uses instead of longterm security?
Mr. BROWN. I would say shorter loans. These long-term loans are
the sort that would be bought by insurance companies, trust companies,
and individual investors. They do not like to buy obligations payable
in 3 or 4 years.
Senator TAFT. AS I remember the. Export-Import Bank made a loan
to Brazil in connection with the building of a steel mill. Would you
think that that kind of a thing would now be transferred to the International Bank and reserve the Export-Import Bank for short-term
stuff?
Mr. BROWN. I don't know about the details of that loan, although
we hold part of it in our bank under the guarantee of the ExportImport Bank. I would say that sort of a transaction would normally
go to the International Bank for Reconstruction and Development
rather than the Export-Import Bank.
Senator TAFT. Have you any views on the Export-Import Bank as to
whether its loans should be made to governments or guaranteed by
governments, or whether it should be made in the ordinary functions
of export trade to private individuals ? This Mexican case you mentioned is a loan to the Mexican Government to enable it to finance its
growers. Do you think it should be confined to Government loans, or
not?
Mr. BROWN. Well, I would say that the loans ought to be made as in
the case of the Brazil Steel Co. and in many cases, to private firms.
I think in every case the guarantee of the government or the central
bank of that government should be required. My reason for that is
that unless you get such a guarantee you have no assurance that the exchange will be made available to pay the interest and amortization of
your loan; but either in the case of the International Bank for Reconstruction and Development or the Export-Import Bank the loans
would be made to private corporations or municipal corporations, but
the guarantee of the government, of the central bank, would be required primarily to insure that the exchange would be available and
also to give the benefit of greater security to the loan.
Senator TAFT. I thought under the International Stabilization
Fund exchange would be always available to governments making
loans. Do they impose any restrictions on private transactions of
normal character ?
Mr. BROWN. There is an express provision, I think, that presently
existing exchange controls can be maintained during the transitional
period of 5 years. There is also a proviso that the resources of the
bank shall not be available for capital export.
Senator TAFT. Yes; that is true; but the question of exchange—it
seems to me the purpose of this was so that you could be sure there
would not be—the purpose of the fund is to assure you you won't have
that—I don't think it would do that—certainly not for 5 years. So I



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BRETTON WOODS AGREEMENTS ACT

think the argument you make for the Export-Import Bank asking a
Government guaranty was probably sound.
May I ask one other thing? One of the general arguments for
this is that it will produce peace in the world. I am a little troubled
by this theory of exporting capital so that we own billions of dollars
of property all over the world—haven't we experienced that that
has created hard feelings? We have been absentee landlords and
they are always accusing us of exploiting people. Isn't it likely to
build up hostility to us rather than any genuine friendship ?
Mr. BROWN. YOU say that has always been the result. I think our
largest export of capital from the United States has been to Canada.
I should say our relations with Canada have been greatly benefited
by the fact that American citizens have invested very large sums of
money and they are deriving large returns from their investments
in Canada. I think the same thing has been true in a good many
other countries. I am quite willing to agree with you, Senator, if
we go to a South American country and representatives of the bondhouse bribe the government to make a loan at very high interest
rates and then the money is spent by contractors and a large part of
it is wasted, or perhaps it is used to build an opera house, assuming
the opera house was built without graft, but the loan was unproductive, that when you come to collect the interest and principal on such
loans, that it does result in hard feelings. I think that loans that are
made with the proviso in the International Bank for Reconstruction
and Development, that the purposes of the loans shall be carefully
looked at; that they should be of a nature to aid the productive
capacity of the country and ability of the country to provide more
goods for exports and thereby obtain more foreign exchange—I think
that international investments properly made help international relations. I think the relations between England and this country were
greatly stimulated by the fact that for 50 or 60 years English capital
played a great part in the development of the Central West and Far
West of this country.
Senator TAFT. DO you think that improved feeling toward England in the Central West ?
Mr. BROWN. I do.
Senator TAFT. Well,

I certainly do not. I went down last year to
Puerto Rico. The American sugar companies in Puerto Rico are
the target of every Puerto Rican politician as having exploited the
people of Puerto Rico. I don't think it is true.
Today in Cuba, the fact that we have invested large sums of money
in Cuba is the principal argument of the tremendously growing communistic movement in Cuba today. It enables them to build up feeling against the United States and American capital.
Senator MILLIKIN. May I interrupt?
Senator TAFT. Surely.
Senator MILLIKIN. Mr. Brown, is the line of distinction perhaps
between countries that have a standard of living comparable to ours
and those countries which have a very, very inferior standard of living in comparison2 For example, you mentioned Canada. We have
much the same outlook and a relatively comparable standard of living. We don't have those same stresses and strains that Senator
Taft mentions in Puerto Rico where we have a revolutionary move


BRETTON WOODS AGREEMENTS ACT

99

merit because people are oppressed. Isn't the distinction to be found
in the conditions in one kind of a country as distinguished from the
other?
Mr. BROWN. I think in Puerto Rico you have political domination
by the United States. I think in the case of countries like Argentina
where there are very large American investments by meat-packing
concerns owned in the United States and where the standard of living
is certainly lower than it is in this country, that the investment of
money down there which has greatly increased the productive facilities
of the Argentine, has tended to promote good feeling.
Senator MILLIKIN. May I ask one more question?
Senator TAFT. Surely.
Senator MILLIKIN. IS it the intention of the bank to attach social
conditions to its loans ? For example, let us assume we made a loan
to X to the south of us for the construction of a steel plant. Would
there be any conditions attached to the loan regarding the wages
paid to those who build the steel plant and the wages paid to those
who operate the steel plant? Would there be any condition of that
kind attached?
Mr. BROWN. None are set forth in the document. There were certain people at Bretton Woods, certain technical advisers and volunteer advisers, even to the American delegation, who thought that it
would be desirable to impose conditions regarding labor unions and
wage rates and other things. Once the loan is made the money can
only be spent on an audited system of vouchers. Generally speaking,
the only amount that can be loaned is money required to pay for the
foreign exchange which is required to pay for the imported articles
that go into the project. For instance, if we loan money for a railroad in Brazil we would loan them money for the rails and signal
equipment and locomotives. We would not loan them money for the
labor to build the track or the ties or for the station buildings, which
the country would have to provide out of its own capital resources.
Senator MILLIKIN. In addition to the charge in the country where
we have made the loan that our money would be used to oppress people, I am wondering what the effect would be in this country on some
segments of our population. Would they feel we were using our
money in foreign countries to obtain substandard wage rates, and
so forth ? In other words, would you be building up agitation in our
own country through the use of our money in foreign countries ?
Mr. BROWN. I cannot see any possibility of that. If you loan money
for the purpose of developing: foreign countries or opening up their
agriculture, or for the purpose of aiding in their industrial developing, the natural effect of that would seem to be to raise the standards
of living in those countries.
Senator MILLIKIN. What was specifically in my mind was that in a
number of loans we have made to the south of us during the war in
order to encourage the production of war essential minerals we have
attached in one way or another provisos for wage scales which are
substantially higher than those which prevail in the country getting
the loan. That has resulted in quite a lot of internal trouble in those
countries. I am just wondering not only what the effect there is going
to be, but what the effect here of loans of that kind might be.




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BRETTON WOODS AGREEMENTS ACT

Mr. BROWN. Well, there is nothing in the bank proposals which
would justify the bank interfering with the wage scales or union conditions of the people engaged on the project.
Senator MILLIKIN. Like all bankers, they could interfere as bankers
do, if they wanted to; couldn't they ?
Mr. BROWN. I wouldn't say that because the money which is loaned
is to be used to pay for foreign exchange for imported articles in
connection with the project, i t would not be used to pay the local
labor on the project. If we loaned money to Brazil, for instance, in
order to pay for rails imported from the United States and from England or a signal system imported from Sweden, I cannot see how it
would affect—how we could possibly impose any labor conditions on
Brazil in connection with the project.
Senator MILLIKIN. That would be outside of the functions of the
bank, would it?
Mr. BROWN. One of the defects in international loaning in the twenties, particularly as it applied to South America, but it was also true
of Germany, that no differentiation was made between the loan of
money needed for the foreign exchange in connection with development projects and loaning them money required to pay for purely local
expenditures for labor and home-grown supplies.
Senator RADCLIFFE. Mr. Brown, whenever loans are made by a
bank or any institution, there may be indirect results affecting social
conditions. That would apply in this country or any other country.
But it seems to me to be rather unreasonable to expect a bank to
so guide its policy because these indirect results might come about.
Senator TAFT. Don't you think there are a lot of people in the
Government today who would like to use that to raise wages ? I don't
say it is a bad thing. I am just asking whether you don't think that
is likely to happen.
Senator BARKLEY. Mr. Chairman, what is the use of speculating
about what some individual banker might want to do, or what his
motive might be? It seems to me to be using up valuable time. I
•would like to have Mr. Brown get into the fund, if he has said all he
wants to about the bank. •
Senator TAFT. I haven't quite finished my questions about the bank.
The CHAIRMAN. Well, Mr. Brown suggested that this last matter
we were discussing had nothing to do with the provisions of the articles
of agreement for the bank.
Mr. BROWN. I am glad to answer any questions about the bank,
but you know better than I do what sort of people are employed by
the Government. 1 don't live in Washington, and you do.
Senator TAFT. Well, I will have to draw my own conclusions from
that.
Senator BARKLEY. I think it ought to be said that on the whole they
are not below the average of American citizens.
Senator TAFT. 04 course, it is true when a man makes a loan of
money he can attach any condition to it that he sees fit; that is, he has
that power. Under this International Bank they could impose conditions if they watned to; whether it would be wise or not we cannot
judge at the present time.
Mr. BROWN. Yes; and they will impose conditions such as that the
money has to be used for purchase of imported material, since the
loan is designed to provide foreign exchange. They will impose con


BRETTON WOODS AGREEMENTS ACT

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ditions that the project has to be useful,, to increase the productive
capacity of the country.
You ask me whether they are going to impose conditions about
wages and working conditions, union conditions, and I would say there
is no intention in the draft of the document that they should do that.
Senator TAFT. Mr. Brown, I only want to suggest that international
investment on such a scale as this, it seems tome, would make trouble.
You brought up the question of Canada. In Canada American money
is looked upon practically as Canadian money. There is such close
friendship between the countries there is not likely to arise any feeling.
But in other countries it is always a question. The moment a foreigner
comes in, that fellow is a foreign devil, or he is exploiting their people,
or he is an absentee landlord.
I only wanted to suggest that that kind of thing carried on on such a
tremendous scale as seems to be contemplated here—I am just wondering whether that would not be productive of more hard feeling"
than it would be of peace.
Mr. BROWN. It is my opinion that international investment on a scale
that increases the productive capacity of countries who cannot provide their own capital, which advances their development by many
years, if it is made on not too large a scale and is made for productive
purposes, will increase international good will and good feeling.
Senator TAFT. Just as another instance of what I had in mind,
besides Cuba, there is Mexico. Apparently the feeling against American investments in Mexico and the ill-will was so great that the
government confiscated all American oil wells. How are we going
to guard against that in the postwar period, against the confiscation of American investments or international investments? How
can we prevent a continuation of that?
Senator BARKLEY. Isn't there quite a difference between a loan
made by this International Bank for development purposes and the
private exploitation of foreigners going into a country and gobbling
up all their natural resources, which is what happened very largely in
Mexico ?
Senator TAFT. Since Senator Barkley interrupted me, may I say I
cannot see any difference between foreigners going in on their own
and gobbling up resources on the one hand, and on the other hand,
gobbling them up on the guaranty of an international bank? It is
both gobbling up resources.
Senator BARKLEY. In the latter case the exploiting would take place
by the citizens of the country where the money was borrowed and
not by somebody on the outside. If you go on the theory that anybody who borrows moiley is going to be mad at the lender, the Government of the United States probably is awfully sore at everybody
in this country because it is borrowing a lot of money from all of us.
Senator TAFT. This is not a question of borrowing money. It is a
question of foreigners coming in and owning your big plants and
resources. This is not only an International Bank; it contemplates
American investments all over the world as I see it, and I want to
suggest that while some of that is all right, if it is not carried to
extremes, I think it is going to make more trouble in the world and
more hard feelings than it will do good and promote peace in the
world. You don't agree with that.



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BRETTON WOODS AGREEMENTS ACT

Mr. BROWN. I don't agree with that. I happen to have been in
Mexico a great many times. I don't agree with your Mexican
analogy at all.
Senator TAFT. Well, if Mexico had done that to us and we had
been some other country—if they had taken and confiscated our oil
wells and we had been some other country that I know of, we would
have gone to war about that. It would have been a cause of war,
the fact that they had confiscated our citizens' property in Mexico.
It happened that we had a Government determined to be at peace
with Mexico and trouble was avoided, but that kind of thing might
easily lead to war, us I see it.
Mr. BROWN. Then I would say that a loan guaranteed by the Government or by the. Central Bank of the Government, as provided in
the International Bank for Reconstruction and Development would
give you a safeguard against a charge that you had gobbled up their
natural resources. We canceled a lot of investments of various oil
companies in Teapot Dome and Elk Hills after they had been made.
I don't want to go into a discussion of the Mexican oil situation, but
at least the Mexican Government claimed a good many of those oil
concessions had been obtained by means of
Senator TAFT. The International Bank will have a representative,
won't they
Senator BARKLEY. Let him finish his sentence. By means of what?
Mr. BROWN. By fraud.
Senator BARKLEY. Yes.
Mr. BROWN. And bribery.
Senator BARKLEY. Anyhow, this International Bank will not be
loaning money to Americans to go into some other country to develop
and exploit it; they will be making those loans to some foreign agency,
will they not, to develop its own country ?
Mr. BROWN. It will probably loan it to some Mexican corporation,
privately owned, possibly municipally owned, perhaps some province,
perhaps to the Government itself.
Senator TAFT. It might be either, might it not? It might be an
American who had obtained a concession from China, we will say, to
go in and build a mill in China ?
Mr. BROWN. It could be.
The CHAIRMAN. At Bretton Woods we talked about international
cooperation. We were quite insistent we were going to have that, too.
We are not talking that way here now.
Senator BUTLER. In the making of loans internationally the psychology isn't any different from making loans domestically by your own
bank. If you owe a loan and you get in trouble you are not making
friends with the banker. The banker is generally a pretty good fellow
until collection day comes along. Of course, if he has made a good
loan in the first place he may keep the friendship, but otherwise the
borrower isn't very friendly.
Mr. BROWN. Well, I can only say that I have loaned a lot of money
as a banker and that I still count most of the people who borrowed
money from us amongst my friends.
Senator BUTLER. Well, you made wise loans.
Mr. BROWN. I have had people blame me for loaning them too
much money, particularly people who thought I ought not to have



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103

loaned them any in 1928 and '29, when they were very anxious to
borrow it.
But, generally speaking, I think a bank grows through its customers who have borrowed from it and who remain friends of the bank.
Senator BARKLEY. If this is the only day in which Mr. Brown can
appear here, I think we ought to get down to the fund.
Senator TAFT. May I suggest that while the bank is less controversial, it involves in some ways a more fundamental departure and
has greater bearing on the general question of the future foreigntrade policies of this country than the fund over a long period. I
think that is very important. I don't think it should be neglected.
It has been neglected from the very beginning. It was dragged in
as a sort of a stepchild. I don't see how there can be any objection
to investigating the policy of the bank which is a part of American
foreign investment.
Senator MILLIKIN. I think the point is that this particular witness
has to leave and we want to get some testimony on the fund from him.
Senator TAFT. All right. I have finished, as far as I am concerned.
The CHAIRMAN. Very well. We will go to a consideration of the
fund now, Mr. Brown.
Mr. BROWN. Well, I have taken part in a great many discussions
in a great many places on the fund. I have heard, I think, almost
every possible objection wThich can be raised to it. I think the objections to the fund in the last analysis center around two things, on
the part of informed critics of it.
First, the fund is. a kind of novel loaning institution in that it is
not up to the management to determine who shall have credit and to
impose—if they give credit—such conditions as they see fit, but the
borrower has a restricted and conditional right to borrow money up
to the amount of its quota. That is an idea which is opposed to the
general thinking of bankers, of whom I happen to be one, and businessmen who believe that the lender should have the right to make
or refuse a loan; should have a right if he makes a loan to impose
any conditions that he w^ants on the making of the loan.
If I could set up an International Monetary Fund and leave that
discretion in the hands of the fund management and get the other
nations of the world to join in it and put up their share of the capital
required for it and to assume their share of the risk, I would be in
favor of doing so, but I think to anybody who took part in Bretton
Woods, who took part in the Conference and heard the representatives and experts of other countries at Atlantic City, who settled
nothing, but put forward their views, who have gone over the record
of some of these bilateral discussions, would realize that he could not
have gotten any great proportion of the various nations of the world
to go into an international stabilization fund unless their rights of
access to it were defined. Their rights of access to the fund are not
automatic as some people state. They are subject to a good many
conditions and restrictions.
A country cannot take more than 25 percent of its quota in any one
year. It must borrow the money for the purposes of the fund and
represent that it needs the money for the purpose of settling transactions on current account.




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BRETTON WOODS AGREEMENTS ACT

The fund management has the right to refuse even initial access
to the fund if it finds that use of the resources of the fund would be
contrary to the purposes of the fund and injurious to its other members. The agreement necessarily is a compromise between the point
of view of leaving absolute discretion in the management of the fund
and giving an absolute right of access to the fund on the part of the
members. I think the restrictions are such that with proper management they will work. I think the interests of the various countries in the fund, not alone of the United States, are such that they
will see that the restrictions and conditions are not violated.
The second greatest objection to the fund, or the one most often
urged, is the objection that the whole thing is premature, that you
cannot possibly have currency stabilization until the world is settled
down, until various countries have balanced their budgets, until they
liave built up a balanced state of trade where their exports and imports, including services on both sides, balance each other, till the
danger of internal political upheaval is past.
Again, the question comes that the condition of a great many
European war-devastated countries, the condition of a great many
countries whose economies have been completely dislocated by the
war, is such that without outside assistance they cannot on their
own resources set up a currency which their own citizens will accept
and use as a basis for even short-term transactions. They cannot,
have a currency which will have such a relative stability that their
people will be willing to engage in foreign trade, manufacture for
export, or make contracts to buy goods for imports, because they do
not know what their costs may be or what prices they will get if the
exchange value of their currency fluctuates rapidly. And unless
something is done it is my belief that you are going to have a continuing chaotic condition in those countries and that they will inevitably go to some form of totalitarian government, simply because
it will be the only way that their people can get food to eat. And
I think that if such a thing happened apart from the destruction of
any possibility of increase in foreign trade it wTould increase military
and naval expenditures on the part of the United States that would
cost us far more than any possible risk that is involved in our contribution to the fund.
Senator TAFT. I do not quite understand. What military operation
do you refer to ?
Mr. BROWN. I would say, for instance, that if another war broke
out
Senator TAFT. Oh, well, if another war broke out, I agree it would
be infinitely more expensive. I thought you said something growing
out of a particular country that went Communist or something of
the kind, or was disturbed by failures.
Mr. BROWN. Well, I think that chaotic economic conditions in a
country produce civil wars and civil wars are apt to produce wars
between nations.
Senator TAFT. I think that is right.
Senator MILLIKIN. Mr. Brown, would this be a correct statement
of your thought, which I think is a very interesting one: That as you




BRETTON WOODS AGREEMENTS ACT

105

have an increase in totalitarianism our own military risks increase;
therefore we have to spend more for armament, and so forth? Is
that your theory?
Mr. BROWN. I think so. I would put it this way: As unsettled
and revolutionary conditions and wars in other parts of the world
increase, our own necessity for expenditures on armament increases.
Senator MILLIKIN. In other words, in the absence of actual involvement in war, necessarily we would have to increase our expenditures
for military preparation due to the increased tensions in the world
due to the things you are talking about ?
Mr. BROWN. Yes, sir. It seems to me that you simply cannot wait
before you do something about it. Now, it is perfectly true that we
as a government, through lend-lease or some other device, can give
great quantities of money to various countries through direct loans,
subsidies, what will you; but it seems to me that going into the International Monetary Fund is a much cheaper and a much less risky
way of bringing about a result which is very necessary for the selfinterests .of the United States, because I think we do need foreign
trade. I do think we do want to avoid chaotic conditions in the rest
of the world, in our own self-interest. Unless you have some relative
degree of currency stabilization, you won't have any great volume of
foreign trade, and you will have very heavily increased military
expenditures.
Senator MILLIKIN. Mr. Brown, you say that from the standpoint
of a Senator who is trying to pass unbiased judgment on the matter,
he has to decide whether these particular measures together with the
whole program of foreign help will tend to halt or at least ameliorate
the progress toward Communist or other totalitarian forms of government, or whether we are simple throwing a bucket of water into a
great conflagration and wasting it; isn't that true ? From our point
of view isn't that one of the things that we have to consider? It is
your theory, as I understand, Mr. Brown, that doing these things
will halt or have a tendency to soften these revolutionary movements.
Against that might be the argument that what we are proposing to
do here is just a wasted bucket of water in a great conflagration.
Mr. BROWN. Well, I think that unless the United States by one
means or another assists other countries who by themselves find it
difficult, if not impossible, to maintain currencies which have relative
stability and which can be used as a basis for calculations by their
nationals and by our people in foreign trade, that we will suffer a
tremendous loss both because we won't have export trade and also
because we will be put to much greater military expenditures. I cannot predict that the adoption of the Bretton Woods plans is necessarily going to prevent the development of totalitarian governments.
I think it will have a tendency to prevent chaotic conditions developing abroad and will consequently greatly increase the chances of
a peaceful and cooperative world in the future. Nobody can say
absolutely that this, that, or a whole collection of things wiil perform
that result.
Senator KADCLIFFE. Mr. Brown, even though the viewpoint that
this is merely a bucket of water is not overpessimistic—it seems to




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BRETTON WOODS AGREEMENTS ACT

me that it must be—has anyone brought forward any suggestion in
regard to replacing the Bretton Woods propositions with anything
which would seem or promise to be effective or efficient ?
Senator MILLIKIN. If you are directing the challenge at me, Senator
Senator RADCLIFFE. NO.
Senator MILLIKIN. I would answer it in this way
Senator TAFT. I call your attention to the proposals of Mr. John
H. Williams, of the New York Federal Reserve Bank, for a key currency approach. There are other plans. There were other plans
proposed before this became a central feature, weren't there Mr.
Brown ?
Senator RADCLIFFE. Yes; I know there were other plans proposed^
but I wondered if anyone felt that they were an adequate substitute
for these, whatever they may be worth.
Mr. BROWN. There have been plenty of plans, Senator. No. 1 is the
question whether this plan is better than other plans. Question No. 2
is even if you thought the other plans were better than this plan,
whether there would be any chance to get the other plans adopted.
Senator TAFT. Well, the only suggestion was that there was no other
plan. I just wanted to clear that up. That is all I was answering,
all I was suggesting.
Senator RADCLIFFE. I did not suggest there wasn't any other plan.
I suggested whether there was any which would promise to be more
nearly adequate than this. That was the point I had in mind.
Senator TAFT. May I ask this, the thing that occurred to me in connection with the bucket-of-water argument of the Senator from Colorado ; isn't half of this thing wasted ? I mean nations are entitled to
draw down their money whether they need it or not, as I see it. They
are entitled to draw down for purposes not connected with currency
stabilization. Isn't your own statement on Russia, for instance, that
undoubtedly this will be used to buy machinery in this country—isn't
that a statement that has little relation to currency stabilization—
that particular billion two hundred million ?
Mr. BROWN. Well, I would say it depends—I think my language
was that Russia would undoubtedly use its quota in the fund to pay
for imported capital goods, principally from this country, which it
desired for its economic reconstruction, and that this would not be
regarded as for strictly stabilization purposes in the general use of
the word "stabilization."
Senator TAFT. Well, isn't it
Mr. BROWN. But again, you take the case of Russia, and defining
what you mean by "stabilization purposes," the purpose of the fund
is to take care of the country's situation where the balance of payments is upset but which within 2, 3, 4, or 5 years you can reasonably
expect will have it restored. If Canada should have a couple of severe crop failures in 2 successive years, it would be regarded as entirely
proper, within the purposes of the fund, to advance the money to
Canada.
Senator TAFT. Yes; but what I mean now, 1.2 billion—I mean
$300,000,000 a year to buy capital goods and build plants is a permanent loan, isn't it? It is not any stabilization. It is not any temporary stabilization question. That is permanent. That is, the cost.
That is a permanent loan.



BRETTON WOODS AGREEMENTS ACT

,

107

Mr. BROWN. It is a permanent investment. Whether it is a permanent loan depends on how soon Russia would be able to pay it off.
Senator TAFT. It is the kind of loan we have said was the proper
thing for the bank to undertake, isn't it ?
Mr. BROWN. It would be, but I mean suppose that you say building
plants; Russia will, in addition to building plants, undoubtedly want
to buy tremendous quantities of agricultural machinery which have
a life of 3 or 4 or 5 years.
Senator TAFT. That is Export-Import Bank business, but that is
not currency stabilization, I mean, as I see it; is it ?
Mr. BROWN. It depends what you mean by currency stabilization.
I think that I have nothing to retract—that I would say it is not
strictly a stabilization loan. On the other hand, you can take the
viewpoint or argue it, if you want to, that if Russia had been devastated by a crop of locusts, and its principal article of export was
wheat, and it had no wheat to export, that it would be a stabilization
loan to give it the money, to wait until it got next year's crop. If Russia
has been devastated by German armies and wants to borrow money
which it feels it can repay in 3, 4, 5, or 6 years, and is willing to
undertake to repay it, for the-purpose of getting its agriculture going
and getting itself in a position where it can export goods, it seems to
me that it would be a proper thing for a short-term loan.
Senator TAFT. The only thing, it seems to me, though, Mr. Brown,
that that kind of argument just confuses the whole thing between capital loans and temporary loans and stabilization loans. Surely they
are all for the same purpose. Personally, I think it is all in the same
pot. I think the whole question is how much money Russia is going to
borrow and when they will pay it back. I don't know when they will
pay it back, but what I want to suggest is that, as far as this fund is
concerned, Russia is really—that 300,000,000—that billion two hundred
million seems to me to be wasted as far as currency stabilization is
concerned. They don't need it for that purpose. As a matter of fact,
Russia has no currency, have they ? I mean they have no private ownership at all ?
Mr. BROWN. Oh, yes; they have money in Russia.
Senator TAFT. They have no private ownership ?
Mr. BROWN. Yes.
Senator TAFT. Well,

put it this way, then: All trade is done by the
Government with foreign countries outside? That is the only
Mr. BROWN. I would say all trade is run through Governmentcontrolled companies with state monopoly. So with manufacture.
Senator TAFT. And so when you talk about removing restrictions on
trade, you do not remove them in Russia, do you ?
- Mr. BROWN. YOU do not.
Senator TAFT. They can

just refuse to take your goods if they
don't want to take them, and nobody else can take them. That is not
an exchange restriction, because they do not restrict it; they just do
not buy your goods. Isn't that correct ?
Mr. BROWN. That is perfectly true.
Senator TAFT. SO that as far as Russia is concerned we cannot
achieve the removal of the depreciation of currency; we cannot achieve
the removal of restrictions on exchange. They can run their foreign
75673—45




8

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BRETTON WOODS AGREEMENTS ACT

trade the way they please, and the Government is the only person who
runs it. Isn't that correct ?
Mr. BROWN. Well, when you say depreciation of currencies, I would
say that they can run their foreign trade in any way they wish to
run it. They can buy from whom they please and sell to whom
they please.
Senator TAFT. Well, isn't it true that as far as the stabilization question is concerned, from any technical standpoint Russia should just
have been left out of it? I see why they can't be. I don't object
to their being included, but I only wanted to suggest that a lot of this
8 billion 800 million or our $2,750,000,000 is wasted under this present situation; that if we took that whole thing and applied it to maybe
one-third of the countries that are in the fund, we perhaps could help
those countries to solve their whole problem with this money; whereas
now those countries will get a little piece of this fund, and then it is
going to have to be supplemented by large loans or other arrangements.
Isn't that a fairly correct statement of the whole effect of this ?
Mr. BROWN. NO ; I wouldn't say it was. I would say that a country
which has a system of state trade doesn't in a strictly technical sense
need stabilization funds or have a stabilization problem. Obviously,
if all trade is under the control of the government, they can balance
imports and exports by starving their people, if they want to, and
buying less, or they can sell goods at a loss to produce funds for export
if they want to. I do think, and I understood you to say that you think,
it was desirable to include Russia in the fund.
Senator TAFT. If you are going to have this kind of a fund, the
international fund, you have to include Russia. From a political
standpoint I can see it has to be done. I just think it is a necessary
result of this kind of a fund which throws away some of the money
as far the purposes of the fund are concerned.
Mr. BROWN. I don't
Senator TAFT. It dissipates a large part of the fund.
Mr. BROWN. I don't think it throws it away, because I believe myself that Russia can and will pay back its advances from the fund.
Senator TAFT. Well, I do not mean that it will not be repaid-. I don't
mean to say that. I meant to say that it is wasted as far as this immediate currency stabilization problem is concerned. That is what I was
suggesting.
Senator MILLIKIN. Mr. Chairman, ma}' I ask Mr. Brown a question?
The CHAIRMAN. Certainly.
Senator MILLIKIN. Mr. Brown, I am somewhat concerned with the
effect of the operation of this fund on the tariff or export and import
policies of the country. In theory, if you give me the right to regulate
the value of our money, I ipso facto have control over our exports and
imports. Now, we are delegating to this Board that has charge of the
fund the power to establish the relative values of money. Are we not
by that token granting that Board power to regulate the export and
import policies of the world, interfering with the power, let us say, of
this country to regulate our own export and import policies by congressional action or congressional delegation, keeping in mind for the
purpose of my question that we do not control the fund; we only have
30 percent, or something of that kind, of the voting power of the fund.




BRETTON WOODS AGREEMENTS ACT

109

Mr. BROWN. Well, in the first place, the values of all currencies are
stated in terms of gold, and it is expressly provided that the fund
cannot change the gold value of any country's currency without the
consent of that country. The fund could no more change the gold
value of the dollar, of the pound, than I could. If a country wants to
change the gold value of its currency, it has to consult with the fund;
and, with certain small exceptions, if it acts without the fund's consent, it can be denied the use of the resources of the fund.
Senator MILLIKIN. But from the
Mr. BROWN. I don't see, as far as the value of our money or the
desirability of American dollars is concerned, that the fund has got
anything to do with it. If you mean that in the long run, if a country loans money abroad, whether it loans it through participation
in this fund or directly or in any other way, that it can only get it
back by taking goods or services or gold, I would agree with you.
If you loan money abroad, you can take repayment in goods or services. You can take repayment in gold. But there isn't enough gold
to go around. Ultimately you may get more than you yourself want.
You can loan more money for the purpose of paying interest on the
obligations you already have and for the purpose of covering the
export of more goods, but finally you get tired of loaning money, and
then you have either got to stop exporting or lose your money.
Senator MILLIKIN. One of the things, as I understand, we are trying to remedy is the manipulation by countries of their currencies
to affect their foreign trade. Aren't we doing the same thing at least
initially when we establish the relative values of moneys of the
countries ?
Mr. BROWN. N O ; I would say not. The initial value has got to
be established by agreement between the country and the fund. In
the case of a country which really sells and buys gold at a given
level, the value is automatically determined by that fact. In the case
of a country which doesn't buy or sell gold, or isn't prepared to,
at a given level, which is on a completely inconvertible basis, the
fund and the government of that country have to agree on a value;
and the fact that you have an international body or group agreeing
on the value of other countries' currencies initially would, I hope,
mean that the value of those currencies would be determined as well
as could be. I realize that under present conditions in the world
it is very hard, if not almost impossible, to set a value on a great
many currencies, and that a great many of the initial values will
inevitably have to be changed up or down.
Senator MILLIKIN. Let me put it to you this way, Mr. Brown.
Let's assume that the fund, by some stroke of miraculously good
judgment, is able to establish the proper relationship of all currencies to each other. Will not that determination affect the export
and import situation of each of the countries whose currencies have
thus been valued ?
Mr. BROWN. Well, the valuation of a country's currency in relation to the terms of other currencies necessarily plays an important
part in determining the course of its imports and exports, but I
don't see what the initial determination by the fund has got to do
with the question, because the country and the fund have got to




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BRETTON WOODS AGREEMENTS ACT

agree on an initial value. If they don't agree, the country does'nt
participate in the fund.
Senator MILLIKIN. I am willing to assume, for the purpose of discussion, that the fund makes a miraculously accurate determination
of the respective relative values; but, once determined, and every
time that it is changed, if it be changed, my thesis is that we are
affecting at the same time the relative position of each of those
countries in relation to world trade. From that I take the next
step—and I am just speculating here to clarify my own mind. From
that I take the next step; that to the extent that the fund does that,
it interferes with the other controls that the countries may have over
their export and import business; that in our own case that control
is in Congress, and in our own case so far as the fund is concerned
we will be in a minority position. It do not know whether there
is anything to it, but I just want to get the benefit of your vast
experience.
Mr. BROWN. Well, they cannot change the gold content of the
dollar. So that, taking the mass of the other world currencies—and
they have to be expressed in terms of gold—I don't see how any
action of the fund would affect the question.
Senator TAFT. Let me ask you specifically, Mr. Brown
Senator FULBRIGHT. May I ask Mr. Brown, Mr. Chairman, one or
two questions?
Senator TAFT. Oh, excuse me. All right.
The CHAIRMAN. Very well.
Senator FULBRIGHT. I have one or two questions.
Do you feel that there is any substantial chance of the loss of the
amount we put into this fund ? Do you agree that this is better protected than the amount of the risk in the bank ?
Mr. BRO.WN. Well, I would say that the fund—I am not talking
about the dollars in the fund alone. Undoubtedly the greatest demand by other countries is going to be for American dollars. I mean
the American dollars will go out of the fund in large part, and they
will be replaced by other currencies. If we are willing to receive
imports and if we are willing to receive services of other countries
in a sufficient volume, the thing ought to get into balance, and the
dollars would not become scarce. If all the dollars in the fund
were used up and dollars were rationed, and we decided Tto get outT
cur money would be frozen, if you want to put it that w ay, in a lot
of other currencies; sterling, Canadian dollars, Mexican pesos, what
will you. Maybe in francs, Polish, or other currency. We would be
entitled to get those other currencies at their gold parity with the
dollar, what they were then worth, which means that if we were
willing to accept payment in goods or services we could collect our
money. If we are not willing to accept payments in goods or services, there probably won't be enough gold to get payment in, and
we will be sitting with a frozen claim but not a lost claim; and even
the only place where I would feel danger of final and ultimate loss
would be in the event of another general war or
Senator TAFT. HOW about another general collapse like that of
1932 and 1933?
Mr. BROWN. I do not think that that would do it, because we might
freeze, but I do not think that our collapse in '31 and '32 would



BRETTON WOODS AGREEMENTS ACT

HI

have been nearly so great if we had been willing at that time to have
taken imports from other countries. We were not.
The CHAIRMAN. The tariff prevented that.
Senator TAFT. Well, no. Wait a minute. We were willing to have
bought $4,000,000,000 worth of goods in 1930. That was when the
collapse was going on—after the collapse; is that true ?
Mr. BROWN. The stock-market collapse had started, but not general
business.
Senator TAFT. 1929. 1930 was fairly poor, too.
Senator FULBRIGHT. The operation of this fund successfully would
be inconsistent with the recognition of a high-tariff exclusive policy
on the part of this country, wouldn't it? It contemplates a reasonably free flow of trade, does it?
Mr. BROWN. Well, it depends what you mean by a high tariff. I
mean if the country—if we loan money abroad, I don't care whether
we do it privately or whether we loan it through the International
Bank or loan it through the fund, in the long run unless we are willing to take imports and services we won't get our money back, and
Senator FULBRIGHT. What I mean by "high tariff" is
Mr. BROWN. I think that you can have a high tariff on certain
articles, and if your total imports are great enough, why, you will
balance up. If you have a high level of employment in this country,
our past history has always been that even against pretty high tariffs
we have imported things like fancy English woolens and French perfumes and German china and a lot of other things.
Senator MILLIKIN. A large free list.
Mr. BROWN. We have a large free list.
•
Senator TAFT. Are you through, Senator Fulbright ?
Senator FULBRIGHT. One other thing. There has been a criticism
that the period of these loans is too long, that instead of—I understand in the House this matter was argued, and I would like to hear
you comment on it: That instead of contemplating, I believe they
use the word "cyclical"—it might be 6, 8 years; it might be limited to
18 months. I would like to have your view as to how long that
should be.
Mr. BROWN. Well, I think the dislocation of world trade due to the
war5 the destruction caused by the war, is such that the periods of
time required to get countries into a position to balance their payments, to catch up, where a country has been off balance, are much
greater now than they were before the war. It is a situation as if
a country had had a succession of four or five very heavy crop failures
one after the other, and that you have got to give a greater length of
time than 18 months if you are going to get trade going again and to
have a reasonable chance for a country's developing an even balance of
payments. Maybe in a country like Brazil, for instance, they will
have a great quantity of coffee, which keeps pretty well, but it cannot export the coffee, because it cannot get ships to move it. Its big
supply of coffee may be backed up for 2 or 3 years.
Senator TAFT. Mr. Brown, just one point, following up the question
or a question raised by the Senator from Colorado: Doesn't the action
of the fund have a direct effort on our tariff and importation of goods
in competition'? For instance, if you fix the pound at $4 to the pound,
which is where we are trying to maintain it today, I take it—instead



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BRETTON WOODS AGREEMENTS ACT

of that you fixed it at $3 to the pound. In other words, you permit
the British in your initial thing to depreciate their currency, at least
the paper value of the currency. Doesn't that so reduce the cost of
English woolens, for instance, delivered in this country, that a 50percent tariff may be wholly inadequate? In other words if you are
trying to protect—if you have a tariff policy attempting to protect
the American textile industry, doesn't the fixing of the pound at $3
practically nullify,- or may it not nullify, a tariff completely by permitting the importation at much lower prices ?
Mr. BROWN. I wouldn't say that it would. In the first place, I
think, under the agreement they have got to communicate as the initial
rate the rate which was in force at a certain time, which was designed
to prevent countries proposing a lower rate. If they want a different
rate, they would have to get the consent of the fund.
Senator TAFT. Oh, I think—well, of course they have to get the
consent of the fund. There is no question about that. I agree that
we couldn't—we could perhaps block it, but we might want to agree
to it. Maybe $3 is the proper economic basis of the pound. I don't
know. I am only saying what I am really—and the argument that I
think I made on the floor yesterday—certainly will today—is that to
try to fix our—to revise our tariffs now before we know where the
fund is fixing the value of these currencies leaves us with a vitally important unknown factor in the possibility of competition with American industry.
Mr. BROWN. Well, I think, take the case of English woolens and
their competition: England has to buy its wool from other countries.
It has to buy most of the food which its people live on from other countries. It may get a temporary advantage and temporarily for a very
short period reduce its cost of production; but if it reduces its pound
from $4, say, to $3, and the American dollar stays where it is, it will
pay very much more for its wool.
Senator TAFT. Well, I don't think it would. The Australian currency would almost certainly go along with the pound.
Mr. BROWN. It has not in the past.
Senator TAFT. SO there wouldn't be any change in the wool, would
there?
Mr. BROWN. It hasn't in the past.
Senator TAFT. YOU do not think it would go down with sterling ?
Mr. BROWN. NO. It went down by itself long before sterling, I
mean it's
Senator TAFT. Well, I am only interested, or it seems to me that
the
Mr. BROWN. I think this
Senator TAFT. I don't see how it could be denied that the fixing of
the value of currencies by the fund, which has to be done—may be
done perfectly properly—has a substantial effect on the question of
how much tariff we need to protect an industry if we wish to protect
it. Doesn't it?
Mr. BROWN. Well, I will put it the other way: that at the present
time countries can engage in currency depreciations for competitive
purposes without any let or hindrance. Today, if England wanted
overnight to drop the pound from $4 to $3, it could do so. One thing
that the fund will certainly do will be to prevent competitive exchange depreciations.



BRETTON WOODS AGREEMENTS ACT

113

Senator TAFT. Well, now, why do you say that ? It clearly permits
a 10 percent—without even talking about it, it permits anybody else—
it permits you to go any distance you want to, if that is in accord with
your political policies or whatever it is.
Mr. BROWN. NO.

Senator TAFT. I mean that practically, as I read the fund, it really
is an invitation to the devaluation of currency as a means of righting
internal affairs, of righting internal disequilibrium.
Mr. BROWN. Well, I don't read the fund that way at all. Originally
10 percent; yes. Beyond that, if the fund finds that it refuses to concur, and the country goes ahead and acts, the fund can cut off that
country from access to the fund's resources.
Senator TAFT. Let me read what Lord Keynes said:
We are determined that in future the external value of sterling shall conform
to its internal value as set by our own domestic policies, and not the other way
around.

Now, isn't that a statement that the English regard the fund as permitting them to depreciate their pound just as much as they choose to
do so, if it is in accord with what they consider to be their internal
political and economic policies ?
Mr. BROWN. I don't think so. If you had read a great many of the
criticisms of the fund which have appeared in English newspapers,
you would find arguments that England should not go into the fund,
because, precisely, they can't change their money as readily and easily
as they do it now, once they get into it; and therefore it is to England's
advantage to stay out of it.
Senator TAFT. Well, Mr. Keynes should be right, then. He was a
delegate at Bretton Woods. He knows what was intended, and he
says the opposite, and it seems perfectly obvious to me from the
language of the fund itself that there is no bar to depreciation of
currency if a country regards it as part of its internal policy, economic
or politico-economic policy. I don't see any answer to the language
of the thing. I just call Mr. Keynes in as a witness, but it is written
in the fund.
Mr. BROWN. Well, all the Senators can read the section and form
their own conclusions on it.
Senator TAFT. Well, suppose they read it. I mean it says that—
The fund shall concur in a proposed change

The CHAIRMAN. What page are you reading from now ?
Senator TAFT. It is on page 6, the article IV, section 5 (d), (e),
and (f) :
The fund shall concur in a proposed change which is within the terms of
(c) (ii) or (c) (iii) —

And (c) (iii) is anything—
above if it is satisfied that the change is necessary to correct a fundamental disequilibrium. In particular, provided it is so satisfied, it shall not object to a
proposed change because of the domestic social or political policies of the member
proposing the change.

All you have got to do is to adopt a domestic social or political policy
that creates a fundamental disequilibrium, and the fund can't object.
Mr. BROWN. I would say that if a fundamental disequilibrium exists
' you then don't have a competitive currency depreciation such as was
practiced by Germany, at times by Belgium and France, with the de


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BRETTON WOODS AGREEMENTS ACT

liberate purpose of getting a jump on production costs as against other
countries.
Senator TAFT. Well, I don't think that France ever did that; do you ?
France permitted—my impression was, not.
Senator FULBRIGHT. What do you understand by that term "disequilibrium" there, "fundamental disequilibrium," Mr. Brown % Just
how would that operate ?
Mr. BROWN. Well, take a very clear case: Chile at one time had a
good balance between exports and imports, and its principal article
of export was nitrates. Means were discovered of getting nitrates in
from the atmosphere, and the principal article of Chile's export trade
disappeared almost overnight. Well, obviously there was a situation
where there was a disequilibrium and a fundamental disequilibrium in
the condition of Chile's export trade. While there may be a difference of opinion, I believe the only way you could correct that disequilibrium, practically, was by a change in the value of Chilean
money, because they had to develop copper production and production of other articles of export to take up their slack. They had to
cut off importing a great many articles which theyJiad previously
imported.
You ask what a fundamental disequilibrium is. I mean it is
Senator FULBRIGHT. That is, then they did not devalue it for the
purpose of getting a competitive advantage?
Mr. BROWN. NO.
Senator TAFT. Wouldn't

you say, however, that if
unable to export enough to pay for their imports, that
mental disequilibrium? They have to live. To live
export more.
Mr. BROWN. Yes; I would say that.
Senator TAFT. That is a fundamental disequilibrium.
Senator EADCLIFFE. Mr. Brown, this language that
referred to a little while ago, I am quoting:

England was
was a fundathey have to

Senator Taft

In particular, provided it is so satisfied, it shall not object to a proposed change
because of the domestic social or political policies of the member proposing the
change.

Isn't that discretion in the fund and not in the country which is
affected? If it is in the fund and not in the country, then it certainly
does not give the county the arbitrary right to bring forward this
plea and insist that it shall be prevailing. However, if that is the
proper interpretation of that language, I therefore assumed that the
discretion was in the fund and not in the nation which offered that
explanation.
Mr. BROWN. Well, the idea was that if we were spending a great
amount of money in social security, that the fund's government
couldn't say, "Well, we won't allow you to change the value of your
dollar even though you need it to balance your trade."
Senator TAFT. Let us follow that through. You mean if you assume a policy in which you have a large government deficit which
results in a depreciation, perhaps, of your currency, then that is a fundamental disequilibrium; you can't object to it?
Mr. BROWN. NO.
Senator TAFT. Because

is that right ?



it is brought about by your social policy;

BRETTON WOODS AGREEMENTS ACT

115

Mr. BROWN. I mean, you have a fundamental disequilibrium. I
mean if it is brought about by—there is no comma between the
"domestic social or political policies." I mean it is domestic social.
Senator TAFT. Social or political only; yes.
Mr. BROWN. Social or political policies; that the nations of the
world were jealous, and the United States was jealous, that the fund
should not say to us, and other nations were jealous that it shouldn't
say to them,." Your trouble is the dole in England. You are spending too much on relief. Your trouble is that you allow labor unions
and protect them by labor legislation which keeps your labor cost
up. And your trouble is your whole form of government, which is
Bolshevik."
Senator TAFT. Mr. Brown, I understand
The CHAIRMAN. Wait. Let him finish.
Senator TAFT. Yes.
Mr. BROWN. That if through a social measure a fundamental disequilibrium has been brought about in a country, and the fund finds
that a change in the currency is necessary in order to correct the fundamental disequilibrium, that they can't force a country against its will
to change its domestic social or political policies.
Senator TAFT. Well, it can't prevent its depreciating its currency,
because that is a result of it. That is what— it is not that it can't.
Of course, they can't tell them directly to do it or not. But, Mr.
Brown, I can't understand why that does not nullify the whole purpose of this fund. The purpose of the fund is to stabilize currency.
The only causes of unstabilized currency are two: (1) That you have
a deficit policy in your Government finance. This says you can't
have any objection to that. The other is that you can't export
enough to pay for imports. You say you can't do that because your
wages—you are promoting high wages. You can't object to the fact
that they are promoting high wages and are unable to export. So it
seems to me the net result is just wholly to eliminate your right to
object to the only things that bring about instability in currency.
Mr. BROWN. Oh, there are other things that bring about an instability in currency.
Senator TAFT. Well, those are the principal things, aren't they,
those two, your export balance and your Government fiscal policy?
Those are the two things, aren't they, that affect the value of currency most ?
Mr. BROWN. They are two of the things that affect the value of currency, but there have been a great many cases of countries deliberately
cutting the value of their currency in order to undercut the markets
of another country. There have been devices of countries selling*
certain kinds of currency or making it available for purpose of destroying the economy of another country or of getting a certain export market exclusively for itself. Germany did that in the Balkans
with its special form of marks.
Senator TAFT. Russia could do it now without any of that, couldn't
it, by simply selling for one-fourth of its value, if they wanted to?
Any totalitarian country in dealing in its own goods could get around
it right away by simply going out and selling stuff at any price it
wants to sell it for.




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BRETTON WOODS AGREEMENTS ACT

Mr. BROWN. It would get tired of it pretty quickly if you
Senator TAFT. Well, I think Germany would have got tired of that
practice. It wasn't going to benefit Germany in the long run. I agree.
Senator FULBRIGHT. If the effect is brought about by a social—you
say social security—actually that country hasn't received much advantage. There is no incentive there in the same way as there is in
this deliberate practice for the purpose of undercutting. That is,
they are actually paying that out in the costs, and it is squeezing them
much harder, isn't it? There is, it seems to me, a difference, where
that is brought about by increased social-security payments or doles
and where they just do it in order to gain a market. There is some
leeway where they are not actually spending more internally.
Mr. BROWN. Well, that is why I still insist that I was correct in
my answer to Senator Taft that a competitive currency depreciation
would be prevented by the fund agreement. Currency depreciations
may not be prevented if a country wants to follow unsound fiscal or
social policies, but that is not competitive currency depreciation.
The Russians, for instance didn't want a proviso that we could object
to their totalitarian form of government or communistic form of government. The- English wouldn't want us to object to their socialsecurity or labor legislation. We wouldn't want to have any international body saying what our labor legislation or what our socialsecurity policy should be. There were a lot of people in the United
States in 1931 and 1932 who thought the remedy for the depression
was cutting Government expenditures and cutting wages.
Senator MILLIKIN. Mr. Chairman.
The CHAIRMAN. Yes.
Senator MILLIKIN. Isn't

this correct, though, Mr. Brown: From
the international standpoint it doesn't make any difference whether
a particular currency is depreciating by reason- of the social policies
of the country or whether it is a deliberate act to better its international trading position? Isn't the value of the currency, in the
last analysis, no matter how created, the determining thing?
Mr. BROWN. NO. I would say that it would have a different effect.
For instance, if a country was unable to maintain its export position
because its costs were very high due to a social domestic policy such
as relief or guaranteed wages, or something of the sort, and which
was thus losing its trade and couldn't export enough goods to get the
food on which to live, and its currency went down—I would say
that its effect would be quite different from that of a country which
was getting along pretty well and then suddenly decided that it wanted
to get the jump on somebody else and drop the value of its currency,
which would
Senator MILLIKIN. There might be a time element in there. But
let us assume the pound went to $3 because of social policies, or let us
assume that it went to $3 as the result of deliberate manipulation.
The wool would flow to this country ? It would be the $3 value that
would cause the wool to flow and not the reason for the $3 value;
isn't that correct ?
Mr. BROWN. I don't know whether I quite get your question,
Senator. If England's cost of manufacture, due to its social policy,




BRETTON WOODS AGREEMENTS ACT

117

had gotten so high that it could not export enough stuff to get the
necessary imports to feed its people and keep its economy going or
maintain its standard of living, and then it decided that the only
way it could bring about a change was by dropping the value of its
currency, the effect of which would be to reduce wages, without
perhaps the people who were getting wages knowing it—and that is
what- currency depreciation is—would that have the same effect if it
had been done deliberately in advance, as if it were done after things
had gotten so far out of balance that the fund would find that a
disequilibrium had already taken place? I think there is a difference in trying to correct a situation wThich has clearly deteriorated
and trying to improve a situation which has been static.
Does that answer make sense ?
Senator MILLIKIN. Well, I understand the answer.
Mr. BROWN. Well, you may not agree with it.
Senator FULBRIGHT. There would be a great deal of pressure on
them to change the internal polic}^ in that case, wouldn't there—a great
deal more reason for them to change the internal policy ?
Mr. BROWN. Well, of course, that is the great argument between
the people who think it ought to be entirely discretionary with the
fund as to whether credit is extended or whether a country should
have a conditional right to get credit from the fund. A lot of people
say that the latter is not fair. They say that a government does not
need to reduce the value of its currency; what it ought to do is to
balance its own home budget by increasing taxes; it ought to cut down
on governmental expenditures for relief, and ought to stop public
housing; it ought to do this, that, and the other thing. That is substituting the judgment of the fund for the judgment of the people who
are running the country, and I do not believe that you are going to
get any considerable number of nations to give a bank that power
over its economy.
The CHAIRMAN. Are there any other questions of Mr. Brown?
Senator MURDOCK. Mr. Chairman, if all other questions have run
out, I would like to ask this.
The CHAIRMAN. Yes.
Senator MURDOCK. We

have recently found it necessary, Mr. Brown,
to cut our gold reserves in this country. The Senate has already
passed that. It has been recommended by the Federal Keserve Board.
I assume the other countries are in no better position so far as gold
is concerned than we are. I am wondering whether you as a banker
can see any objection to bringing silver into the picture alongside gold
as a metallic base for our international and national currencies.
Mr. BROWN. Well, I think I can, Senator.
Senator TAFT. It is not the 16-to-l question.
Senator MURDOCK. HOW is that?
Senator TAFT. The 16-to-l question, the $64 question.
Senator MILLIKIN. I would like to have a very serious answer to
that question.
Mr. BROWN. Well, in the first place, I do not think there is a total
shortage of gold in the world. I think that there is enough gold in
the world and enough production of gold, and it is a question of its
distribution. I think it is desirable to use silver to the limit, that is,
for subsidiary coinage. I think that there is a provision in this agree


118

BRETTON WOODS AGREEMENTS ACT

ment that silver can be taken as collateral for advances by the fund
where the advance exceeds the quota, which provision was put in at
the urgent request of Mexico and Peru and some other countries, because of a situation that arises in time of prosperity locally. Mexico
is prosperous today as it was during the last war. A lot of silver
gets into circulation, and people hoard it, and then when a depression
comes they begin to use it for living expenses, and it pours into the
central banks of those countries, and they want to find a means of
carrying it over what they regard as a cyclical depression. My main
objection to the use of silver as a monetary base is that a great part
of the silver in the world is or was produced as a byproduct of lead
and zinc and copper mining, and that anything that is produced as
a byproduct tends to have fluctuations in value wholly apart from its
intrinsic value. If a lot of zinc is being produced with a considerable amount of silver, a lot of silver is produced, and the silver would
be produced irrespective of the price of silver, so you do not have as
good an automatic balance as you do in the case of gold.
Senator MURDOCK. Even with the great production that you have
during the war, the greatest production of lead and zinc and copper,
you still find that the production ratio of gold and silver has maintained a rather—the production of silver has not increased proportionately to the production of gold. It is still, however, the ratio of
16 to 1. I do not want to lead you into any long discussion of gold
and silver. I just wanted to know if you did object to bringing silver
in, and as I understand your answer it is that you do.
Mr. BROWN. Yes. I think there will be no chance of getting any
considerable number of countries of the world to agree to using the
silver as a yardstick or a measure of value for their currencies in any
kind of an international fund. I think
Senator MURDOCK. Was it discussed at all at Bretton Woods?
Mr. BROWN. It was.
Senator1 MURDOCK. It was?
Mr. BROWN. The American

Smelting & Refining Co. and various
other people even managed to get people into the hotel without passes
to argue their point. [Laughter.]
Senator MURDOCK. Evidently the opposition was sufficient, however,
to keep silver out.
Mr. BROWN. Well, of course, many of the delegates from Mexico
and Peru made arguments for silver.
Senator MURDOCK. I am hopeful that some day the bankers will see
the light on silver and bring it into the picture.
Senator FULBRIGHT. Mr. Chairman. If you are through.
Senator MURDOCK. I am through.
Senator FULBRIGHT. There is one question that is perhaps not exactly
on the point, but it has been discussed at some length on the floor, anct
it has relation to this. That is the relative importance of our international trade, and some people insist that it is only two. three, four
billion, that it possibly could be five, although it is not really of much
importance, that it is just an incidental matter.
Senator TAFT. DO you mind if I change your premise? Nobody
has argued it isn't important. The argument is that the tariff won't
make any difference, won't make enough difference as between about
four billion and five or five billion and six. That is the argument.



BRETTON WOODS AGREEMENTS ACT

119

It isn't that international trade isn't of importance. It is of importance. It is that what you can do about it is being exaggerated.
That is the argument.
Senator FULBRIGHT. Well, I think—I believe you said its importance
has been exaggerated.
Senator TAFT, That is right; its importance.
Senator FULBRIGHT. The importance of our imports ?
Senator TAFT. NO, no; the importance of the change. As to our
imports, my position is you are going to have imports anyway. You
are going to have three or four billion on the free list. Regardless of
what you do., you are going to have a considerable number over the
tariff, no matter what the tariff is.
Senator FULBRIGHT. Isn't it fair to say that you did leave the impression that it has been vastly exaggerated and that our domestic
market is so much more important ? My point is
Senator TAFT. I wouldn't say that. I say the importance of our
doing something to promote it is exaggerated, considering what can
be accomplished. That is more what the point is.
Senator FULBRIGHT. But is it fair to take just the amount that is
exported and say that is all the difference it makes. It is the secondary effect of our foreign trade upon our domestic. What I have in
mind particularly in the South, that formerly cotton was exported to
around 50 percent of the crop, but the fact that we exported that
relatively small amount in dollars had a tremendous effect. It isn't
measured by export figures. It is exceedingly important to the whole
economy of all of the domestic trade of that area. Instead of saying,
it isn't as important, I think it gives a false impression in just quoting
the amount that does move actually in foreign trade. It gives a false
impression that it is much less important than it is.
I would like for you to comment on what you would say is the
relative importance of building up international trade.
Mr. BROWN. Well, I think, of course, that the importance of foreign
trade—and, I take* it, export trade—is very different in different
sections of the country and with different industries. In the South
there is no possibility of finding a market for the cotton, which so
far is the one cash crop, unless you export a very large percentage
of it. It used to be around half the crop; I think it is down to about
30 percent now. It is very important in the farm machinery industry.
Maybe it is only 15 or 20 percent of the total production that is exported, but the existence of that 15 or 20 percent has an effect on costs
and mass production which makes it very important; and I think
that if the amount of our exports, say, is 5 or 10 percent of the total
production, that the loss of that 5 or i0 percent would have secondary
effects which would cause the total production to go down, not 5 or 10
percent, but 15 or 20 or some other percent.
Senator FULBRIGHT. That is my point. Now, the fact that we cannot sell the cotton does not affect just the cotton grower, because we
in turn buy a great deal of this farm machinery from the manufacturers in Illinois, which doesn't show up as international trade, but
actually we are very big purchasers, and you can't say just the South
is in bad shape. It actually will react upon the manufacturers far
greater than the amount that they export in dollars. It does not
have that cumulative effect.



120

BRETTON WOODS AGREEMENTS ACT

Mr. BROWN. I think it has a cumulative effect. I think that itsimportance in the general economy is a question of degree.
Senator FULBRIGHT. The effects.
Mr. BROWN. But I think that to show that our exports are 5 percent of our total production doesn't mean that the loss of that 5 percent would only affect the general welfare that much.
Senator FULBRIGHT. That is right.
Senator TAFT. Well, the point I should try to make, there is no
question of the loss of that 5 percent. There is a possible question of
the loss of 1 percent or the failure to gain 1 percent not 5 percent.
Senator MILLIKIN. Mr. Chairman, may I suggest to the witness
that the point made by the Senator from Arkansas, which I think
is sound also carries with it a very important corollary. It also applies
to imports. A very small percentage of the total production of the
country in terms of imports might have precisely the cumulative effect in devastating regions of this country.
Senator MURDOCK. I am wondering, Mr. Chairman, whoever said
the South wasn't smart. I can't believe that was ever said.
Mr. BROWN. I do not believe that you can have exports unless you
have imports, if that is what you mean.
Senator MILLIKIN. I am simply making the point that, the cumulative effect of injury to the South through its failure to export carries with it a corollary' that when you import the percentage of import
does not necessarily measure the damage. By the same token you
have a cumulative disaster possibly to the livestock people, the wool
people, the mineral people, the hide people, the dairy-products people, all of whom can be put out of business by imports.
Mr. BROWN. Well, we had a situation
Senator TAFT. We might adjourn this discussion to the floor.
The CHAIRMAN. Yes. Well, it is all right.
Senator TAFT. Excuse me, Mr. Brown. I didn't mean to interrupt
you.
Senator FULBRIGHT. The Senator from Colorado had a*i answer on
his tongue that he didn't get to give about whether or not this is just
a bucket of water in a great conflagration. I was very interested in
the answer, and he was unable to gain the floor. I wonder if he
would still give that.
Senator MILLIKIN. Well, the point, Senator, as I understand it, was
that this should be acceptable unless we can think of something better. That was the end point. Of course, it depends entirely upon
the premise from which you start. If this is a good thing, then, of
course, it should be acceptable in the absence of anything better. But
if you start from the premise that it is a bad thing—and I am really
educating myself on this—then it is like going down the hall here,
and we find a fellow prostrate on the floor, and we all rush around
and we look at him, and we see he is in a bad fix. Some do-gooder
rushes into the drug store and grabs a bottle of carbolic acid, and he
is about to stick it down the poor devil's throat when some fellow
says, "You are giving him a lethal dose of medicine."
"Well," the fellow with the carbolic acid says, "unless you can think
of something better, by God, he is going to take this." [Laughter.]
Senator FULBRIGHT. I knew it was a good answer. That is why I
asked for it.



BRETTON WOODS AGREEMENTS ACT

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Mr. WHITE. It was very good.
Senator KADCLIFFE, I didn't have all of that in mind when I asked
the question, but I would like to say that I was thing of the question
of an alternative: If this thing should have some value, and if a
bucket of water can do a little bit of good, if you don't have the
bucket of water, whether you want to do nothing at all or whether
you can suggest some alternative; and, if you have some alternative,
what would be the relative value of this alternative. That is what
I was driving at. It is a question of relativity.
Senator MILLIKIN. The final point is that the poor devil might get
well. He probably will die, but he might get well if you left him
alone.
Senator KADCLIFFE. YOU still believe that doctors and medicine have
some purpose?
Senator MILLIKIN. Well, they prescribe spiritus frumenti sometimes.
Mr. BROWN. Does this all go in the record? [Laughter.]
Senator TAFT. I think we all wish to thank Mr. Brown—I know I
do—for his coming here.
The CHAIRMAN. Well, I certainly do.
Senator TAFT. It has been very interesting.
The CHAIRMAN. He was a great aid to us in Bretton Woods. We
couldn't have gotten along without him.
Mr. BROWN. Thank you.
The CHAIRMAN. We are going to meet again tomorrow morning at
10: 30 to go on with Mr. White.
(Whereupon, at 12:50 p. m., an adjournment was taken until tomorrow, Saturday, June 16, 1945, at 10:30 a. m.)







BRETTON WOODS AGREEMENTS ACT
SATURDAY, JUNE 16, 1945
UNITED STATES SENATE,
COMMITTEE ON BANKING AND CURRENCY,

Washington, D. 0.
The committee met at 10: 30 a. m., pursuant to adjournment on Friday, June 15,1945, in room 301, Senate Office Building, Senator Robert
F. Wagner, chairman, presiding.
Present: Senators Wagner (chairman), Radcliffe, Downey, McFarland, Fulbright, Taft, Butler, Capper, and Millikin.
The CHAIRMAN. The committee will come to order, and we will hear
again the Assistant Secretary of the Treasury, Dr. White.
STATEMENT OF HARRY D. WHITE, ASSISTANT SECRETARY OF
THE TREASURY, WASHINGTON, D. C.—Resumed
The CHAIRMAN. Doctor*, you heard some few little problems and
some questions asked, that Mr. Brown was asked to answer, and I
imagine that you may want to expand a little bit on the answers. That
might be a good wTay to start.
Mr. WHITE. All right, Senator. Would it be agreeable to you if I
referred back to the question which Senator Millikin asked me and
which I postponed answering?
The CHAIRMAN. Fine.
Mr. WHITE. And before we forget or miss the opportunity, I would
like to comment on the question that he so kindly agreed to postpone.
The CHAIRMAN. Certainly. Fine.
Mr. WHITE. If I remember correctly, Senator, and you correct me if
I am in error, you asked
The CHAIRMAN. A little louder.
Mr. WHITE. I thought Senator Millikin asked me what assurance
was there, if any, that a proper evaluation of currencies could be made
for those countries which have been subjected to the disruptions of
w7ar, at a time when the future was so uncertain as the coming years.
Was that about the gist of it, or would you wish to rephrase it'i
Senator MILLIKIN. That is entirely correct as far as you have gone,
and I would add the element which I think is implied in your statement : That those particular countries are, at least in my view,
threatened with revolutions and counter revolutions for God knows
over what period of time, and that suggests to me that for those reasons it would be very difficult, if not impossible, to make a sincere
valuation of their currencies.
Mr. WHITE. Well, that was a problem that gave us a good deal of
concern. We realized, as you stated, that many of the countries would
75673—45



9

123

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BRETTON WOODS AGREEMENTS ACT

be subjected to disturbances after the war of a serious social, economic,
and political character, that the period of adjustment, of achieving
stability, might be a long one, and that the determination of exchange
rates which would be appropriate for those countries would not be an
easy task.
An illustration of the difficulties involved in such a task, which I
would like to describe off the record, faced us 2 years ago.
(There was colloquy off the record.)
Mr. WHITE. There is another provision which states that the fund
can postpone the time at which a country can have access to the fund
resources, even if the original rate which had been agreed upon is in
> effect, if in the opinion of the fund that country cannot maintain that
rate without too great dependence on the fund's resources. That
protective provision is important because it authorizes the fund to
say in effect to a country, "It is true you selected this parity to gold.
It is true we agreed to that parity. However, in our judgment now
the use of that parity is going to make it necessary or make it likely
that you will depend upon the fund to a greater extent than we think
is in your interest or in the fund's interest, and therefore you cannot
have access to the fund's resources until and unless certain things are
done which will eliminate our serious doubts as to the appropriateness
of your present rate."
Senator RXDCLIFFE. Would that be a complete denial of access, or
would there be some temporary use or benefit which they might get?
Mr. WHITE. It would be as complete as the fund cared to make it
until such time as in the opinion of the fund the basis for that opinion
on the part of the fund altered.
Senator R YDCLIFFE. But the fund would have the discretion to make
it absolute
Mr. WHITE. Quite.
Senator RADCLIFFE. Or partial, as they saw fit?
Mr, WHITE. Entirely so. And that question of discretion which they
would have in that instance, the question of judgment which the fund
would have in agreeing to any rate, is, in our judgment and in the
judgment of all those who participated in the formulation, one of the
strong features of the fund. I would like to expand on that a little
later when I have finished answering the question of Senator Millikin.
Therefore, the likelihood that the rate finally agreed upon by the
fund will be a reasonable rate is not a remote one. People in this
country and in other countries who are concerned with the determination of rates have considerable experience in that task. They have been
dealing wTith problems of that kind for 15 years or more.
Senator MCFARLAND. Well, now, Mr. White, did you use that experience in fixing this exchange in these countries that we have already
gone into?
Mr. WHITE. We would have liked to, Senator, but in some cases we
didn't have the authority to do so, and in others the lack of appropriate data greatly complicated the task.
Senator MCFARLAND. YOU do not claim that any of those rates are
reasonable ?
Mr. WHITE. I would claim that some of them are unreasonable.
Senator MCFARLAND. DO you know of any that are ?
Mr. WHITE. Off the record.
Senator MCFARLAND. Well, I want this on the record. Our boys are
paying through the nose over on the other side.



BRETTON WOODS AGREEMENTS ACT

125

Mr. WHITE. Well, if you will
Senator MCFARLAND. Are the exchange rates reasonable? I do
not know of a single exchange that is reasonable. In France it cost
me for shirts a dollar a shirt, in our money, to get them laundered.
They have plenty of labor there. There is no reason for that. In
Rome it cost me $5.20 to get a suit cleaned and pressed. And our
boys are paying it on the exchange that you fixed.
Mr. WHITE. Senator, that is what we want to avoid. We didn't
have the final say. They did not come before a fund in which any
country could be told: We think this rate is reasonable and this rate
is not reasonable. The discussions around the table in the Treasury
to which I referred were voluntary discussions designed merely to
provide an exchange of opinions. We had no authority to tell those
countries that the gold parity of their currency should be, except in
the case of Italy. The fixing of the Italian rate raises problems that
I do not think we would want to go into now.
Senator TAFT. May I suggest, though, that we had absolute power
to do as we pleased, and when we get into this fund we are not going
to have absolute power to do as we please. It is going to be fixed
by these same fellows that are getting the advantage today free gratis
for nothing from us; whereas, once this fund is set up, why, they control the board. These various countries that have all of these various
rates of exchange control the board, and our hands are tied completely; whereas when we have full control we give it away.
Mr. WHITE. Senator
Senator TAFT. I do not see how we can expect anything better from
a board that we do not control.
Mr. WHITE. Senator, one of the very important and extremely
desirable features about this fund is that we do not dictate the monetary policy of the whole world. We do not tell other countries what
the gold parities of their currencies shall be, and we do not want
any other country to tell us what the gold parity of the dollar shall
be. That is a matter of agreement among many countries.
Senator TAFT. Mr. White
Mr. WHITE. And if you say that we are not in control in the
sense that we should be in a position to ram down the throats of every
other country, whatever the opinion of the United States should
happen to be. I say that is not in the fund agreement, and I say
that the representatives of this country at Bretton Woods would be
the first to insist that it should not be. After all, the fund agreement
provides for an international institution, not machinery to impose our
views on others.
Senator TAFT. I think it is outrageous, because I think in this case
this is a question of creditors and debtors.
Mr. WHITE. What was the question ?
Senator TAFT. And in this case we are giving our money to a board
which is controlled by the debtors, the very fellows who are going
to borrow. That underlies the whole fund. When you talk about
the discretion of the fund, you mean the discretion of the debtors
themselves. And when you talk about the power of the fund, that
it can do this and that, and that it can put on those restrictions, we
have no assurance that they will put on any restrictions.
Mr. WHITE. Senator



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BRETTON WOODS AGREEMENTS ACT

Senator TAFT. I do not think anybody has ever proposed to give
away American money as this fund proposes to give it away, to people who themselves will control its disposition.
Mr. WHITE. Senator, I have heard you say that before, and doubtless you will say it again.
Senator TAFT. I certainly will, because it underlies every feature.
Mr. WHITE. Yes.
Senator TAFT. We

are just making that as the basis, in my opinion,
of this whole proposition.
Mr. WHITE. And notwithstanding the fact that I think you will
say it again, I should like to examine the basis of what you are saying,
and let us see whether it is warranted. Not that I expect that you
will change your mind, but possibly it might help clarify the subject.
We will have approximately 28 to 35 percent of the votes on the decisions in the fund operations. I say it runs between 28 and a maximum of 35, because there is a provision in there, you know, that gives
us more votes as other countries buy more dollars from the fund, and
gives the country that buys more currencies from the fund, whether
dollars or sterling* and so forth, less votes. So that our voting power
increases as more of our currency is purchased.
Senator TAFT. Reaching a maximum of 35.
Mr. WHITE. Thirty-five percent; quite so.
Now, in any decision that will come before the board and the fund,
whether it is a question of adjustment of exchange rate, whether it is
a question of the amount of currency which can be purchased by any
country, or any one of the decisions which will come before the board,
what will be the situation, Senator? Well, it would be much the same
as would prevail were a decision to be made by a group like this
where each member represented a different state, or as in the Supreme
Court in which we have various judges represent different views,
et cetera. The question would be thrown on the table for discussion.
The American representative will have certain ideas as to what the
appropriate decision should be. And I assure you that if the American representative has certain views, unless he is wrong, he is going to be joined by representatives of other countries who also have
a sense of fiduciary responsibility, who also have an equal desire to
see that the fund will work well, who have an equal desire to see
that there shall not be monetary disruption, and who have an interest
even greater than ours in seeing that the resources of the fund are
not unnecessarily dissipated or unwisely used; and you will have the
representative of Canada and the representative of the United Kingdom and the representative of Netherlands
Senator TAFT. Well, now wait a minute.
Mr. WHITE. And the representatives of other countriesSenator TAFT. United Kingdom; no. Now, my suggestion is this:
European countries are all in the debtor class today. They have
3.900 votes. The South American countries in the long run are in
the debtor class. They favor easy monev for nations. The British
Dominions add over a billion dollars. The British Dominions and
Europe together have a maiority vote, and I suggest that this fund
will be dominated by the British, that the British will be on the side
of all the debtor nations of the world, that they themselves will want
easy money. They are heavily in debt. And I do not say they are



BRETTON WOODS AGREEMENTS ACT

127

going to repudiate their obligations under the fund or do anything
out of the way, but I just say that on every decision where the question
is whether you shall be easy on debtors or whether you shall be hard
on them we are going to have a majority against us.
Mr. WHITE. I gathered that, sir. You had made that clear before. And that is a claim that I want to examine, and I started
to say that the representatives
Senator TAFT. Well, you started examining by saying the United
Kingdom would be on our side.
Mr. WHITE. I didn't say it would be on necessarily our side,
Senator.
Senator TAFT. I understood you to say that.
Mr. WHITE. We might be on opposite sides on a given problem,
and we might be on the same side on a different problem. What
I did say was that the representatives of many countries will be
responsible, reasonable, and competent. I should hope that they
would all be competent. I do not think the United States has a
monopoly of wisdom on international financial matters, nor do I
think it has a monopoly on a sense of responsibility toward world
prosperity. I think that quality is shared by the representatives
of a great many countries; and when a particular problem comes
before the fund it will be examined on its merits, and a decision
will be made on its merits. Your statement that the debtors are
against the creditors doesn't apply at all because the debtors—
what you call debtors, I suppose you refer to countries that are
coming to the fund for foreign exchange—do not have a common
interest that would lead them to always vote together. On the contrary, Senator, their interests are different with respect to one important point, namely, the other country's use of the fund's assets;
each country is interested in seeing that the resources of the fund
shall be kept as liquid as possible and shall be ample for itself because
each member country regards those resources as its particular second
line of reserves; and if its representative votes or permits action
which permits abuse of the fund, which permits improper uses of
the resources, then its own resources are being reduced. And you
are suggesting, for example, that if country -X comes to the fund
for a decision which results in an abuse of the fund's resources, that
England and Netherlands and France and others are going to say,
"We will permit that abuse of the fund because we too are going to
abuse the fund."
Senator TAFT. Mr. White, I am not suggesting an abuse of the
fund. I am suggesting that it is so vague. There is so much power.
There is so much question how you let this go on for 5 years, these
restrictions, whether you let them go on longer, whether you make
them pay back at the end of 1 year, 2 years, 5 years, 20 years. Those
are not abuses of the fund. They leave it wide open.
Mr. WHITE. I am glad to hear you say that you do not feel that
the decisions which will be made will be abuses of the fund. I am
happy to hear you say that, happy to have that on the record. Now
let us continue. You say that the provisions are so broad that there
is room for differences of opinion. Precisely. And any attempt to
formulate a set of principles under which any international organization of the character of the fund can operate will be futile unless



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BRETTON WOODS AGREEMENTS ACT

we realize that such an organization has to have principles which
are broadly stated, has to have principles which permit some flexibility of decision according to the specific case.
There is excellent precedent for that, you know, Senator. I presume that if someone having an attitude similar to the one holding
that these regulations are not specific had been arguing on the Bill
of Rights when the fifth amendment was up for formulation, that
you cannot take away property or liberty from a citizen without
due process of law, I can just see him sitting there and saying, "Now,
what does that phrase mean? You are not protecting any private
individual. All you are- saying is that you can't take it away without due process of law. Now, what is due process of law? You
think due process of law is one thing, I think due process of law
is something else, and a third fellow thinks due process of law means
something quite different. They are never going to interpret that
properly." You could have said that about the fifth and also the
fourteenth amendment with the same justification that you can say
it about this.
Senator TAFT. Mr. White, I don't want to interrupt you, but with
due respect I don't think there is any parallel at all.
Senator DOWNEY. Mr. Chairman.
• Senator TAFT. We adopted that because we had complete confidence
in an American Congress and an American Supreme Court and an
American Executive. I haven't the same confidence in a board
made up of a lot of people whose interests are entirely different from
American interests.
The CHAIRMAN. I suggest that we permit Mr. White to finish the
answer.
Senator TAFT. The difficulty is that
The CHAIRMAN. And not interrupt him.
Senator TAFT. It is true that I talk a great deal, but I have a long
series of questions I would like to ask Mr. White, and he makes a
speech every time you ask him a question. You never can get
through.
Senator DOWNEY. Mr. Chairman, could I ask a few questions ?
Senator MILLIKIN. Mr. Chairman, I think my question has not been
answered yet.
Senator BUTLER. Senator Millikin's question is still before the
committee.
The CHAIRMAN. I do not want to be discourteous to any Member
of the Senate, but I should think the witness ought to be permitted
to answer.
Senator MILLIKIN. I do, too.
Senator BUTLER. It was Senator Millikin's question. I think Mr.
White has been attempting, perhaps not to your satisfaction, to
answer your question.
Senator MILLIKIN. But I don't think he has completed it, Senator,
and I am willing to defer, if that is better, his answering the question.
Senator BUTLER. Well, I do think it should be answered.
Mr. WHITE. Well, I don't want to be in the position, either, of making long speeches, but probably if I am not interrupted I can make
the answers shorter.



BRETTON WOODS AGREEMENTS ACT

129

Senator MILLIKIN. SO far as I am concerned you can make a speech
answering my question.
Mr. WHITE. Yes.
Senator MILLIKIN.
Mr. WHITE. Well,

It is all right with me.
I thought my remarks wTere directed to your
question to begin with. We got shunted off on an important point,
and therefore the length of my reply I think is in some respects warranted because again, and again, and again, the critics of the fund
proposal come back to the idea that the protective features in this
document, that the principles which are set forth to guide the men
in their decision, are so broad that they can be interpreted in one
way or another by the members; and that, since the members are,
using the terms of some of the critics, all debtors and the United
States is the only creditor, the very breadth, the very flexibility of
decision, the general character of the statement of principles, is such
that it provides an easy loophole for all the other countries that
they have no confidence in—apparently all except the United States—
to take us for a ride; and I just want to make one remark with
respect to that view.
I say that if you have no confidence in the other countries, if you
do not believe that they are entering into this agreement seriously,
wholeheartedly, in order to achieve the same objectives that we desire
to achieve, if you believe that they have no sense of fiduciary responsibility, that they intend to enter the fund and permit the dissipation
of its assets as quickly as possible, then I say you should vote against
the proposal. But that was not the spirit of the representatives there.
That is not the basis upon which we are seeking international collaboration. That is not the experience
Senator TAFT. May I say
Mr. WHITE. Of our dealings with other countries. And therefore
I think you are not justified in assuming that each country is going
to act wholly out of accord with the stated purposes of the fund.
Now may I return to your question [addressing Senator Millikin] ?
Senator TAFT. May I correct one statement. My suggestion only
is that each representative of each country will act in accordance with
the interests of that country, and that the interests of that country
are not the interests of the United States.
Senator DOWNEY. Well, Mr. Chairman, it is right on that point
that I would like to ask one or two questions in this hearing. I have
been here several days and have not been able to get in a question
yet. I would like to.
Now, Mr. White, Senator Taft has raised a very categorical point.
Assume that the debtor nations would fix a price for their currency
that seemed too high from our viewpoint. I would like to ask you
to consider that with me in two categories. Would it follow, if that
were done, that it would be easier for the debtor countries to settle
with us the existing indebtedness that is%owed us? Would that be
the result that would follow from that, as to past indebtedness?
Mr. WHITE. If you have reference, Senator Downey, to their obligations to the fund, and your question is that if they depreciate the
gold value of their currency, then the answer is, it is likely to be more
burdensome for them to meet their obligations to the fund.




130

BRETTON WOODS AGREEMENTS ACT

Senator DOWNEY. Their debts ?
Mr. WHITE. Their debts as well as their obligations to the fund.
Senator DOWNEY. I mean their general indebtedness too, I am talking about now.
Mr. WHITE. If it is a foreign debt set in dollars, it would be more
difficult.
Senator DOWNEY. It would be more difficult for them. Well, now,
what would result from a fixing of the currency by the debtor nations
the way Senator Taft is apprehensive might be done, upon current
transactions, commercial transactions, between the nations? What
would be the effect ?
Mr. WHITE. Well, I am not sure that I understand your question, but
if I understand it, and if I might rephrase it, you are asking what
would happen that a country would deem to be in its advantage that
would lead a country to depreciate the value of its currency.
Senator DOWNEY. Yes. And what result would flow from it as injury to us or benefit to them? What might we expect if that would
happen ?
Mr. WHITE. Well, the temptation for some countries to reduce the
value of their currency would come from the desire to increase their
exports and to reduce their imports, to make their goods cheaper to
all foreign countries and make the goods of all foreign countries more
expensive to them. Now, if they do that, as some countries have in
the past, as we think many countries will in the future unless there is
something like the fund to influence their action, the result will be
that our trade will be adversely affected, the trade of the rest of the
world will be adversely affected, and other countries will be encouraged
or forced to pursue the same tactics. And that is precisely what competitive devaluation is.
One country seeks an advantage that puts pressure on certain other
countries. Some countries can stand the pressure better than others,
either because they have larger reserves or because foreign trade is not
as important to them, or because they don't compete with the important export articles of the country that is depreciating its currency. For one reason or another the pressure will not be the same
on all countries, but the pressure will be great on some countries.
Those countries will either be forced or will feel it desirable to protect
themselves and they will also depreciate their currency. That spreads
the area of pressure. Then another country depreciates. Another
country, etc. And you have in effect what happened in the thirties.
That is what we call competitive depreciation.
Senator DOWNEY. Well, then, Mr. White, if I understand your opinion, that even if we assume that there was prejudicial and unfair conduct in the representatives of the debtor nations depreciating their
currency, under the plan that we have there is very little likelihood
that as bad a condition would be worked out as would probably exist
without this plan being put in operation ?
Mr. WHITE. Yes, Senator Downey; there would be much greater
likelihood that this type of,depreciation would be either completely
stopped or reduced, and the reason for that is fairly simple. A country seeking that type of advantage, coming to the fund and saying,




BRETTON WOODS AGREEMENTS ACT

131

"We want to alter our exchange rate," raises to the fore a problem
which strikes at the interest of every other country. There is not
a similarity of interests with that country. On the countrary, every
other country immediately says to itself, "Well, if they are going
to depreciate their currency, if we are going to vote to permit them
to depreciate their currency, they are going to put pressure on us.
Our trade is going to suffer." Instead of coming before a board
which is stacked against the United States, on the contrary, that
board is, in fact, stacked against every country that want to depreciate its currency. Any country desiring to alter its rate would
have to demonstrate that its request to alter its currency is based on
what we call a basic disequilibrium, and I want later to take up that
phrase—basic equilibrium—because it is an important one which is
apparently much misunderstood. It will have to demonstrate to the
rest of the Board members, or to enough of them to make a majority
vote—and remember that the United States has 30 percent—it will
have to demonstrate to a group of men who are entirely familiar with
the consequences and the ramifications of that step—they are likely to
be technicians, experts long experienced in the field—they will have to
demonstrate to that group that their request for the permission to
reduce the gold value of their currency results from a need to compensate for a basic disequilibrium. The provisions in the fund—
not one but several of them—specifically make that clear.
Senator DOWNEY. All right. Now, Mr. Chairman, I just have one
further question and then I have completed.
The CHAIRMAN. All right.
Senator DOWNEY. Mr. White, Senator McFarland spoke of these
very excessive rates that were being charged for goods and services in
the occupied countries at the present time.
Senator MCFARLAND. Well, that is on account of the exchange—the
legal exchange.
Senator DOWNEY. That is just what I wanted to ask. Is that wholly
due to the rate of exchange, or is it due partly to rate of exchange and
partly to other causes ? Do you know ?
Mr. WHITE. Senator, and that is something we keep fairly close
track of. We have men in the field who are constantly informing us
of the situation, and it is something that we are keenly interested in,
and the people of the country have a right to look to their Treasury to
see that, insofar as possible, their interests on the matter of foreignexchange rates are protected. The prices in country X are very high.
I mean local prices. If an examination of the relative, purchasing
power were made by a group such as would constitute the fund, they
might well come out with a different exchange rate. But the situation
in country X now is a special one. Our interest there lies only partly
in what the troops get for their money. We don't want to see our
troops get
Senator MCFARLAND. We have not protected it very well.
Mr. WHITE. This is off the record, please; either that or I will have
to modify my discussion.
The CHAIRMAN. All right; let it be off.
(There was colloquy off the record.)




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BRETTON WOODS AGREEMENTS ACT

Mr. WHITE. Everything you say argues for the adoption of the
International Monetary Fund
Senator MCFARLAND. Our boys pay for it.
Mr. WHITE. That is a separate problem, and I am afraid discussion
of it will take us too far afield.
Senator MCFARLAND. That is right. You started it.
Mr. WHITE. Yes.
Senator MCFARLAND. I helped to bring it along here.
Mr. WHITE. The determination of what constitutes a

proper rate
takes into consideration a comparison of the prices you would pay for
a list of articles in one country as against the prices of similar articles
in others. There are many other factors that enter into a determination of the rate, and under the International Monetary Fund the rate
that would be determined would be, I think you would conclude, a
reasonable one. But in the absence of an International Monetary
Fund each country determines its own currency value, its own par
value, which may not be reasonable from our point of view. We
don't have any effective say as to its reasonableness, unless
The CHAIRMAN. Eight after the last war it was quite unreasonable,
wasn't it ?
Mr. WHITE. Some were; yes.
The CHAIRMAN. Yes.
Senator TAFT. Mr. White,

I don't want to—once the soldiers get
out of there, then the interests of these countries will be to have their
currency low. I mean I take it ultimately the battle with the sterling
bloc, if there is a battle, will be their desire to put sterling lower than
$4.03; is that correct ?
Mr. WHITE. Senator
Senator TAFT. At present their interest is to keep it high; is that
correct ?
Mr. WHITE. Whether or not the advantages in lowering the value
of a currency outweigh the disadvantages is a decision that cannot
be made without taking the specific currency and the specific situation
into consideration. There are always disadvantages, Senator.
Senator TAFT. Well, I agree with you, surely.
Mr. WHITE. And there are
Senator TAFT. I don't think there is any disadvantage in devaluing
the currency.
Mr. WHITE. YOU don't think there is any disadvantage ?
Senator TAFT. But it seems to me the Keynes view is that there is
an advantage in devaluing your currency.
Mr. WHITE. Let us put it this way, Senator. I think you probably
misstated yourself. I thought that probably what you meant is that
you feel that the disadvantages always outweigh the advantages.
Senator TAFT. I don't say always.
Mr. WHITE. Usually.
Senator TAFT. And I say roughly speaking I don't think it is a
real advantage to you to devalue your currency, but nevertheless the
Keynes philosophy seems to me to be that it is an advantage.
Mr. WHITE. Well, Keynes' philosophy is this, as I understand it,
that there are times
Senator TAFT. He said the pound
Mr. WHTTE. Yes.




BRETTON WOODS AGREEMENTS ACT

133

Senator TAFT (continuing). For instance, should be lower than
$4.03.
Mr. WHITE. I think perhaps a more accurate way of saying it—I
think the way Keynes might state it if he were asked that question—
is that there are times when the advantages of lowering the value of
a country's currency exceed, outweigh, the disadvantages. There are
times when they do not. There are times when the disadvantages
substantially outweigh the advantages, and there are times when
that is not so, and the purpose of the fund is to make it possible for
a country to lower its currency value when in the opinion of the fund
the disadvantages of remaining at a given parity are outweighed by
the advantages of changing that parity.
Senator TAFT. Well, in the first place, they can do'it themselves up
to 10 percent.
Mr. WHITE. Yes.
Senator TAFT. Which

changes the whole competitive process,
doesn't it ?
Mr. WHITE. Well, not so fast, Senator. I think it was explained
earlier that it was absolutely essential, if you are going to expect
countries to fix their rate of exchange in agreement with the fund
before operations can take place, that consideration be given to the
fact that many countries have been without normal trade for many
years, and that it is more difficult to know whether a selected parity
is the correct one or some other rate is the best one when you don't
have the immediate past normal trade experience to go on. It is quite
reasonable and in our own interests to make certain that the wrong
rate shall not be selected and perpetuated. And so we say, because
of the great uncertainties which have prevailed in the past 5 years as
to what is an appropriate rate, we will permit a country, after consultation with the fund, to alter it up to 10 percent. What we seek
is the establishment of an exchange rate structure which can be continued and which is in the long-run interests of all countries concerned. We do not seek any advantage. We do not want the other
countries to have an advantage, nor do we want other countries to be
faced with a situation leading to depressions, because depressions
spread and affect us.
Senator TAFT. I am only pointing out, though, that we are letting
these countries do it on their own without the fund having a word
to say about it.
Mr. WHITE. Well, but you are pointing out something that is wrong,
Senator.
Senator TAFT. They do it 10 percent.
Mr. WHITE. Oh, up to 10 percent.
Senator TAFT. That is right.
Mr. WHITE. Yes.
Senator TAFT. One

country does 10 percent; another country does
10 percent.
Mr. WHITE. That is right.
Senator TAFT. It seems to me you just start the competitive devaluation.
However, what I wanted to ask is this one question before I go to
something else: Don't you think before we tie this thing up and submit
the whole question of the relation between the dollar and sterling



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to this Board, the decision of which we don't know, we ought to agree
with the British on a relation between the pound and the dollar ?
Mr. WHITE. Senator, that is a perfectly good question and one that
we gave a great deal of thought to, because sterling is one of the important currencies. This is the problem that we are faced with: The
appropriate level for sterling depends in part upon the level that is
fixed for other currencies. In the same way that what would be appropriate from the point of view of France with its currency, or Belgium
or Holland or any one of the countries, depends upon what other
countries do with their currency value. Therefore you cannot say to
any given country that "the rate which you ought to establish should
be 50 to the dollar or 25 to the dollar," because that country could
very appropriately respond:
"Well, that would be appropriate, right, I agree with you, if the
other rates remain where they are; but what are you going to do with
the rate of country X, and what are you going to do with the rate of
country Y, or some other rate ? We have to know what the other rates
are before we agree what is appropriate for us."
Senator TAFT. I suggest first
Mr. WHITE. Let me follow that for a moment, Senator, because we
have thought a good deal about it, we have had a good deal of experience in such matters, and I think our views on it are worth weight,
as are the views of other persons and countries who have had to deal
with this problem. France is not concerned solely with the dollarfranc rate. France does not compete solely with American products.
In fact, our trade is not very important to the French economy in
normal times. But the Belgian rate is, the British rate is, the Dutch
rate is, the Italian rate is, very important to France; and before
France can say what is the appropriate dollar-franc rate she has got
to know what are to be the other rates. Therefore you have to settle
the important rates more or less together. Therefore, any attempt
to settle a rate between X and Y countries independently of what other
countries may do, would at once meet with opposition on the part of
either or both countries. Supposing one of the two countries was the
United States. Then the other country would say, "Well, we know
you are not going to change the dollar—you have stated so publicly," et cetera. "But how about us? We compete with a lot of
other countries besides the United States, and what are they going
to do with their exchange rate ? You are asking us to fix the dollar-X
rate, which makes it impossible for us to change with reference to the
other currencies. Oh, no. We have to know what the other currencies do." And I doubt if any responsible minister of finance would
determine his rate with reference to the dollar without reference to
what the other countries were doing with their rates.
Senator TAFT. I suggest the first thing you will have to do with
the fund is to settle the dollar-sterling rate and that you had better
do it first, because the sterling bloc may control the board of the
fund and decide against the things that we want to agree to. As to
the value between sterling and the dollar, it seems to me the sterlingdollar rate is going to determine the rates of all these other countries.
Mr. WHITE. It would help determine it, Senator.
Senator TAFT. And, of course, they are more interested in sterling,
I agree, than they are in the dollar, and that means they are going



BRETTON WOODS AGREEMENTS ACT

135

to take the English point of view when it comes to voting on the
question, and it seems to me we ought to have that question settled
first.
Senator DOWNEY. Mr. Chairman.
Senator TAFT. It seems to me all you say is merely a conclusion that
everything is going to be uncertain. We can't do it now. If so, why
have the fund now?
Senator BUTLER. I would like, Mr. Chairman, to get the answer
to Senator Millikin's question. We have been waiting ever since the
opening of the meeting, and it has not been answered yet.
Mr. WHITE. Well, let me wind up the answer. A great deal of
what we have been talking about is germane. What we have tried
to bring out was that the task of determining appropriate exchange
rates in the coming months is not an easy one. It is not an insuperable task.
It is one in which there doubtless wTill be some errors made, but in
the main we would expect the rates that would be determined by
group discussion among the fund members would be much more
realistic and much fairer than would be determined by unilateral
action, and we have provided certain protective provisions to safeguard the assets of the fund in the event errors are made, and to
make possible changes where an error has been made.
Senator MILLIKIN. My observation on your answers, Dr. White,
would be that it may be assumed that the fund provides the mechanics
whereby you can assemble men 4who are engaged in this esoteric art
of money valuation to apply their judgment to what a particular
currency is worth, and that the fund gives that opportunity. My
basic tentative thesis was that there are so many variables in this
world today, that with the exception of a few countries—where there
is a relative degree of stabilization and a long history of fiscal honor—
with the exception of those few countries, you have so many variables
due to the political situation, the economic situation, the social situation, that no matter how competent these gentlemen may be that
operate in these esoteric ways that the rest of us can't understand,
they cannot reach a sound result. That is my point.
Senator DOWNEY. Well, may I ask the distinguished Senator from
Colorado, my very dear friend: Is that the ultimate of pessimism,
then? I mean, are we just in such a complicated world today that we
cannot attempt to work out of the chaos that engulfs us ? T that it ?
Is
Senator MILLIKIN. I would not decry any attempt to w ork out of
chaos, but I want to see what the attempt is, and I want to see whether
it has promise of success.
Senator DOWNEY. Well, Mr. Chairman, that leads me to the question
that I wanted to ask: Now, in your last colloquy with Senator Taft
you have stated your opinion, Mr. White, that country X could not
afford to and would not settle the X dollar rate in advance of the
settlement of other exchange rates, and you seemed to me to point
out reasons why that wouldjbe true. Now, let me ask you to approach
the problem now from our own viewpoint, from us here in the United




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BRETTON WOODS AGREEMENTS ACT

States. Could we in the United States know at this time, in advance
of the settlement of other currency rates in the establishment of this
bank and this fund, what would be the most provident and wisest
X-dollar rate ? Could we do it in advance ?
Mr. WHITE. NO ; I don't think we could. We need to have all the
facts at our disposal; and if country X participates in this fund, she
is agreeing, as we pointed out, that she will not alter the rate agreed
upon unless a basic disequilibrium develops. Therefore she would
naturally wish to be very careful as to the-rate she would set, because
she is depriving herself of unilateral action thereafter so long as she
remains a member, and we would deem it in our interest to see that
an appropriate rate structure emerged, and w^e could not tell what
that was by looking at one rate alone. We would have to see the
pattern of rates.
Senator DOWNEY. In other words, all the great nations of the world
today are tied together, and we ought to attempt to work out the
exchanges of all of them about the same time ?
Mr. WHITE. That is a good way of stating it, Senator.
Senator DOWNEY. Thank you.
The CHAIRMAN. Are there any further questions to be asked?
Senator TAFT. Oh, yes; I haven't asked any of the regular questions I have prepared. Did Senator Millikin get an answer to his
question ?
Senator MILLIKIN. Yes; the doctor has addressed himself to my
question.
Senator TAFT. I have prepared a list of questions. I prepared it
3 days ago. Quite a few of them have since gotten in sideways, but
not directly.
The CHAIRMAN. All right; go ahead.
Senator TAFT. In the first place I wanted to get a general picture.
The purpose of the fund, I take it, is to see that currencies are stabilized; is that right, as distinguished from the loans and the functions of the bank ?
Mr. WHITE. That is one of the purposes.
Senator TAFT. The reason we are putting in our money—what is
it we are trying to accomplish by that ?
Mr. WHITE. I would rather give a list of the purposes, because I
am not sure one is any more important than another. First, we would
like to reduce insofar as we possibly can, the practice of competitive
exchange depreciation and multiple currency practices.
Senator MILLIKIN. That is, having a rate for tourists as distinguished from the rate for the people of that country.
Mr. WHITE. That was before the war.
Senator MILLIKIN. Yes; but that is an example of what you mean ?
Mr. WHITE. Yes.
Senator TAFT. Well,

I mean the main purpose is to stabilize exchange rates between countries. These things you mention are just
things that interfere with that stabilization; isn't that correct?
Mr. WHITE. N O ; not necessarily. A country can legitimately desire
to alter its currency value because of basic disequilibrium, and it would
not be because it was seeking to obtain an unreasonable competitive
advantage.




BRETTON WOODS AGREEMENTS ACT

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Senator TAFT. YOU mentioned competitive devaluation and multiple currency practices?
Mr. WHITE. That is right.
Senator TAFT. What else ?
Mr. WHITE. We want to promote increased trade and a more nearly
stable level of trade.
Senator TAFT. That is by stabilizing currency, do you mean ?
Mr. WHITE. There are other factors involved. There is the question
of promoting proper monetary policies in the various countries, promoting confidence in the stability of currencies and promoting an
appropriate flow of international investment.
Senator TAFT. That is the bank, isn't it, rather than the fund ?
Mr. WHITE. NO; the bank has to do with that directly, but one
of the important obstacles to a reasonably adequate flow of funds to
and from various countries as well as the withdrawal of profits that
a particular corporation or investor would have coming to him is the
various restrictions which are imposed on the movement of funds and
the fluctuating rates of exchange which cause, in many cases, losses
and make the investment a losing one rather than a profitable one.
One of the most important ingredients, I would say, in restoring
confidence in foreign investments would be confidence in the stability of exchange rates.
Senator TAFT. Well, the peculiar function of the fund is to stabilize
exchange rates; isn't that true ?
Mr. WHITE. That is one of them.
Senator TAFT. And through that you hope to accomplish a lot of
other things ?
Mr. WHITE. Through that we hope to accomplish a lot of other
things along with that; and in addition one of the important things
that the fund will make possible is that you will have representatives
of the major countries or all of the countries, in fact, sitting around
a table and discussing their financial and monetary problems, explaining the monetary policy which their country sees fit to pursue,
discussing the serious consequences that some other country's policies
would have.
Senator TAFT. YOU could do all that without a fund. I want an
international board. I agree to that. But you could do all that consultation business without a fund.
Mr. WHITE. YOU couldn't do all of the things we have been discussing without a fund.
Senator RADCLIFFE. Mr. White, you said one of the objectives was
to increase trade?
Mr. WHITE. That is right.
Senator RADCLIFFE. It is your idea that the operation of the fund
would tend to facilitate trade operations by reason of the fact it would
have a tendency to increase it; is that right ?
Mr. WHITE. That is right. It would definitely remove one of the
impedimenta to the growth of trade which is dislocation of exchange
markets.
Senator RADCLIFFE. Anything that tends toward stability would, in
your mind, have a natural tendency also to increase trade?
Mr. WHITE. That is our belief.




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BRETTON WOODS AGREEMENTS ACT

Senator TAFT. Mr. White, isn't the principal determining factor in
the value of currency the fiscal policy of the Government that issues
the currency?
Mr. WHITE. NO. That is only one of them.
Senator TAFT. Well, isn't that one of them ?
Mr. WHITE. That is one, I think.
Senator TAFT. HOW will this fund in any way change that fiscal
policy ?
Mr. WHITE. It depends entirely on the country in question. It depends on the nature of policy in question. It depends on the consequences of that policy. We had a fiscal policy—we had one before the
war and we will have one after the war. There may be some people
who do not approve of it. There may be some foreign governments
who do not approve of it, but our fiscal policy is one that is not subject
to change by the wishes of foreign governments so long as we do not
come to the fund for assistance.
Senator TAFT. Mr. White, isn't it a fact that a government which
pursues for years a deficit policy is going to find that the tendency
is to depreciate its currency.
Mr. WHITE. NO ; I wouldn't say that. It depends on how long and
what the magnitude of it is and what is happening in the world.
Sanator TAFT. Isn't that one of the main factors that did depreciate
the currency for France and Germany after the First World War—
and some other countries?
Mr. WHITE. It was important in some countries and in other countries it was not.
Senator TAFT. I only suggest that with the automatic purchase right
and the inability of the fund to prevent devaluation based on a fundamental disequilibrium resulting from domestic policies, the conditions
imposed are wholly unable to meet that particular factor affecting the
stabilisation of their currency.
Mr. WHITE. I disagree with that.
Senator TAFT. Why?
Mr. WHITE. There are a lot of factors which go into the making
of a stable exchange rate. One of them is the fiscal policy of the
country, but there are many others. Its import policy, its tariff policy,
its foreign investment policy, to name but a few.
Senator MILLIKIN. Mr. White, would you say that once these rates
are stabilized, except for a short term, they remain stabilized unless the
economic and fiscal practices, the social practices, and the political
practices of the country upset that stabilization ? In other words, can
you preserve stabilization by a mechanically imposed operation within
countries with practices that tend to render the values established by
that stabilization entirely unreal ?
Mr. WHITE. It would be very difficult, in many cases unwise, and
in some cases impossible.
Senator MCFARLAND. Mr. White, you were talking about depreciating the value of currencies. After the last war was that due to the
actions of the governments, or was it due to the economics of the nation ?
Mr. WHITE. DO you have a particular country in mind ? For example, Germany, whose currency depreciated so drastically—that was
due to a combination of several factors which you probably remember.
Senator MCFARLAND. Well, I wouldn't want to take Germany because



BRETTON WOODS AGREEMENTS ACT

139

Mr. WHITE. She would be a special case.
Senator MCFARLAND. She would be a special case. But take France,
for instance.
Mr. WHITE. France in the last war when its currency depreciated,
prices within France had risen tremendously .during the war though
the exchange rate during the war was kept fairly stable. A country
can more easily do that sort of thing under war conditions, but after
the war she was confronted with the necessity of adjusting her exchange rate to something approaching her domestic price movements.
Senator MCFARLAND. The point I am trying to find out is whether
governments really try to stabilize their currency rather than to inflate it or depreciate it.
Mr. WHITE. During a war it is very difficult for a country to prevent
price rises. We are having our own difficulties here, as you know.
Senator MCFARLAND. I am trying to find out what will happen after
this war.
Mr. WHITE. With respect to France ?
Senator MCFARLAND. Any country.
Mr. WHITE. They will do they best they can with respect to stabilizing their currency. Some of them will be successful and some will
not be. My colleague hands me a chart which is interesting. It shows
how after the last war country after country in its search for the restoration of stability and confidence in its own currency attempted to go
back to the gold standard and how many of them did.
You may pass this chart around [handing chart to Senator McFarland].
You will notice the upward curve. In 1923 there were about 10
countries that went back to the gold standard. In 1924 about 5 more.
In 1925 about 10 more. In 1926 about 3 more. The next year 4 more.
It reached its peak in about 1927 and 1928. Then trouble began. For
a variety of reasons those countries began to be forced off or elected
to go off the gold standard and their currencies began to depreciate.
By 1939 they were almost all off. So that you do have countries
that attempt to maintain stability. Some achieve it successfully.
Some achieve it for a time.
Senator DOWNEY. Well, did any government remain on the gold
standard except the United States in 1939?
Mr. WHITE. Yes, in a modified sense, Switzerland and Sweden.
There were some restrictions in those countries. You can say they
were on the gold standard, or reasonably close to it.
Senator KADCLIFFE. Dr. White, if this is the appropriate time for
you to comment on it, I am interested in what you might call the historical approach to where we are now. If the opinion prevails, and
since it seems to prevail, that the economic and financial conditions
of the world are in such terrible shape, and that some form of international cooperation is both possible and could be made effective, I
assume that you approached this matter without any preconceived
ideas and more or less an open mind; that you have considered various
other general plans; that you have considered possibly a general substitute for this whole proposition and you have considered very material changes in this particular plan.
Now, the result is you have reached certain definite conclusions.
Would you care to comment on anything you may have considered
and discarded before you got to this definite conclusion?
75673—45




10

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BRETTON WOODS AGREEMENTS ACT

Mr. WHITE. Oh, yes; Senator, the proposals there before you are the
net result of discussions, as you know, that went on for 3 years among
literally several hundred people who were in the field of financial and
international money matters.
Senator RADCLIFFE. Yes.
Mr. WHITE. There were two or three or four or five alternate provisions which were suggested for every provision finally adopted.
Senator RADCLIFFE. Was there any different one which was given
consideration ?
Mr. WHITE. Yes.
Senator RADCLIFFE. And was
Mr. WHITE. Oh, yes. There

believed to be not workable ?
were a number of proposals that were
given a good deal of weighty consideration because they deserved it.
There was a French proposal. There was a British proposal. There
was a Canadian proposal. There was ours and the end result was a
merging of what, in the judgment of the negotiators, was the best
from each proposal they could agree upon. There were a large number of proposals that came in from various individuals and groups
which were all carefully gone over. Sometimes an idea was regarded
as good, and it was thrown on the table and carefully discussed.
Senator RADCLIFFE. Just one other comment, Dr. White, and I won't
go any further. Then this represents your conclusions after a process
of study and elimination. Does it also represent the idea that unless
something like this is worked out you are facing the prospect of what
you might call practical if not theoretical isolationism ?
Mr. WHITE. Well, I think that the reason why you are able to get
representatives of 44 countries with diverse national attitudes and
interests with respect to certain matters to agree on a plan is because
they all recognize that unless something of this character were devised then the future looked very dark indeed for all of them and
ourselves.
Senator TAFT. My understanding was that the American delegates
w^ere told that the plan presented by the United States had to be supported by them. They were not allowed to suggest any fundamentally
different plan. Isn't that correct ? When the delegates reached Bretton Woods, isn't that the instructions they were given ?
Mr. WHITE. When the delegates went to Bretton Woods they had
before them a statement of principles which were the highlights resulting from prior discussions with many of the countries. The major
countries had agreed to an outline of the proposal and the delegates
presumably were to work out many of the important details, many
of the ramifications of the plan without drastically changing some
of the basic elements of the fundamental structure.
That fundamental structure called for international collaboration
for the purposes indicated in the outline. For example, they set certain limits as to the amount of money which the United States was
willing to put in
Senator TAFT. I take it your answer is "Yes."
The CHAIRMAN. May I say right here that our delegates were meeting every morning at 9: 30; isn't that correct?
Mr. WHITE. At least by 9: 30.
The CHAIRMAN. At least by 9:30 and sometimes earlier than that,
and we discussed what went on at the previous session.



BRETTON WOODS AGREEMENTS ACT

141

Mr. WHITE. Not only discussed, but altered many provisions.
Senator TAFT. I don't say that the delegates were not willing to go
along with other countries. I only say they were told before they
went to Bretton Woods that fundamentally this plan would have to
be adhered to, that this plan had been proposed to 44 nations by the
United States Government and that it represented the views of the
United States.
Mr. WHITE. That is not true.
Senator TAFT. Am I correct?
Mr. WHITE, May I state what I think was the situation ?
Senator TAFT., Yes. What is correct?
Mr. WHITE. The principles which were the basis for discussion at
Bretton Woods were principles which represented agreement among
the principal countries who had been discussing this over a period of
a couple of years. They agree on certain outstanding points. Those
outstanding points were some of the basic framework or the basic
principles. They did not represent the views of the United States
alone. It was a joint proposal. It was not the American proposal.
The Americans adhered to the general principles as did Great Britain,
Canada, Eussia, China, and others.
Senator TAFT. America issued the invitation to come to Bretton
Woods.
Mr. WHITE. That is true.
Senator RADCLIFFE. Dr. White, I asked you sometime ago—I am not
sure whether I got the import of your answer in regard to that particular point. I asked you if there were any alternative plans either
in whole or in part which came up for consideration. You made
some reference to a French plan or some other plan, but you didn't
go into any discussion of it.
Senator TAFT Mr. President, I don't want to interfere, but this
seems to be getting a way off the issues which this committee has
before it.
Senator RADCLIFFE. I don't agree with Senator Taft at all. We are
here to consider a certain proposition, and what I want to know is if
there was anything in the alternative considered. I think that is
perfectly pertinent.
Senator TAFT. I tried to bring out that our delegates were committed to this plan. While there may have been plans before that
time there was no consideration at Bretton Woods of any alternative plan, and our delegates were not supposed to propose any fundamentally different or alternative plan. Isn't that a fair statement,
Mr. White?
Mr. WHITE. I think it is fair to say that they were supposed to have
been in agreement with the basic principles outlined in that document
which was made public and which was sent to them prior to the
Bretton Woods agreement. Those were the high lights of the plan,
and they are contained, in more or less modified form in the agreement before you, and the reason for that, Senator Taft, I think you
will fully appreciate.
We had international discussions; we had international conferences
with, respect to these matters going on for over 2 years on an informal
basis.




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BRETTON WOODS AGREEMENTS ACT

Senator RADCLIFFE. Mr. White, my inquiry was not restricted to
what we had actually before us at the Conference. My reference was
to any alternative plans which had come up for consideration at any
time prior to this, either from Canada or from us or from any other
source.
In other words, I wanted to know what had been before us either
at the Conference or at any time before that, because I assumed other
ideas had been considered.
Mr. WHITE. Oh, very definitely, Senator, and as I said, two plans
received more detailed attention than others because they were more
comprehensive, more detailed, and more to the point. Those were the
British plan, which had been developed quite independent of the
American plan as the American plan was developed quite independent
of the British plan.
There was also the Canadian proposal. They were carefully considered prior to Bretton Woods and the principles which emerged were
taken as probably representing the most workable features of those
plans upon which agreement was possible. In calling an international
conference it is only to be expected, and I think Senator Taft, you
would approve of that procedure, that there have to be some terms
of reference which had been decided upon by many of the countries
after prolonged discussion; that you cannot come to an international
conference to formulate powerful and comprehensive proposals of this
character and start from scratch. There has to be some preliminary
clearing away of the ground.
Senator TAFT. Well, Senator Vandenberg insisted on complete freedom of action before he went to San Francisco to suggest any change
he wanted to have made in the Dumbarton Oaks proposal, and my
suggestion is that freedom did not exist in the case of Bretton Woods.
Mr. WHITE. I don't believe any delegate had the least inhibitions
with respect to suggesting any changes or any modifications, whether
large or small; nor do I remember that any suggestion that was made
by a delegate did not receive complete and adequate discussion. The
decisions by the delegation to my recollection in all cases were unanimous, or almost unanimous. Am I correct in that, Senator Wagner?
The CHAIRMAN. Yes.
Senator TAFT. This statement

is contained in Annex C:

The proposals formulated at the Conference for the establishment of the fund
and the bank are now submitted in accordance with the terms of the invitation
for consideration of the governments and people of the countries represented. .

I suggest that the delegates themselves left the thing wide open
and that this is the first time that the governments and people of
the—well, that the people of the countries, at least, have had an
opportunity to consider this proposal.
Mr. WHITE. This is the first time, I think, that Congress has been
called upon to act officially on the program. The representatives
could not commit their governments to the proposals. And the proposals in the form they existed in the principles and in the preliminary
stages were made public and were very, very widely discussed among
all interested people in this country and other countries, but you are
correct in this part of your statement: That Congress for the first time
is called upon to either accept or reject or modify the articles of
agreement.



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Senator TAFT. I am suggesting furthermore that while our delegates may have approved it, they did not purport to commit the
United States Government to this plan and expressedly reserved the
right not only for ratification, but for full consideration by the people
of the plan before its approval.
Mr. WHITE. That is entirely correct.
The CHAIRMAN. That is what we are doing. I think we emphasized
the fact that Congress had to finally decide upon this question upon
all the agreements.
Mr. WHITE. I take it that is why we are here.
Senator MILLIKIN. Mr. Chairman, along the line of Senator Radcliffe's question, I would like to ask this: Am I not correct, Doctor,
in the thought that either at Bretton Woods or some stage or other
of the winnowing-out discussion that a plan was proposed that the
fund would be constituted of the nations that do have reasonably stable
currency at the present time, such as in the sterling areas, and a few
other nations?
Mr. WHITE. Oh; yes; early in our discussion with some of the
officials of the Federal Reserve Bank of New York and with some
of the other bankers and economists the suggestion was made that
what we ought to do was to confine ourselves to what they called
the key currencies, and a suggestion was also made that we ought
to postpone action on the fund, and that the fund should be much
smaller. Suggestion was made we should not have the bank. There
is not, I believe, Senators, a single criticism that has been offered since
the fund and bank have been placed before the people of this country,
or before Congress for action, that did not—was not presented to
us long prior to Bretton Woods, that did not receive the most comprehensive kind of discussion, not only within the American Technical Committee which consisted of some score of experts who were
designated by the various departments, but was explored in the discussions we had with other countries, and in the discussions we had
at Atlantic City.
Senator RADCLIFFE. Doctor, I had the impression that such was the
history of the matter. That is the reason I was desiring you would
give us the specific facts in regard to it.
Mr. WHITE. Senator, we were most eager to work out something
that would be practical and realistic, that would be the best we could
work out to meet the situation as we saw it. We had no ax to grind.
We had no pet hobbies. We started from the point of view of getting
the best that many minds could produce. If you will remember in
the very early draft which we made public as soon as we could get
permission, which was over a year and a half before Bretton Woods, in
the preliminary document, we said something to the effect that a We
are submitting the following tentative unofficial proposals for the
public and for interested and expert opinion, in the hope it would
stimulate discussion, in the hope it would call forth suggestions, improvements, and criticism, and so that we could develop a document
which would help meet very serious problems which we saw ahead
of us." That is what happened. We received visits from hundreds
of people; we received hundreds of letters; we had literally hundreds
of conferences on various suggestions.




144

BRETTON WOODS AGREEMENTS ACT

Senator RADCLIFFE. I assumed so. Certainly there was no preconceived take-it-or-leave-it idea.
Mr. WHITE. On the contrary.
Senator TAFT. Well, I suggest you have adhered to the original
plan desired by the United States Government without any change
whatever in the basic idea of the plan; there may have been all sorts
of modifications, but always in conformity with the plan worked out
by the American experts.
Mr. WHITE. If so, I think that is a tribute to the judgment and competence of the American technicians.
Senator TAFT. And to the ability of Mr. White, I might add.
Mr. WHITE. I should like to claim that compliment, but it would
be unjust. There where many hands and many heads that had a share
in this, and my colleagues deserve no less credit than myself. There
were many minds that have contributed to it.
Senator TAFT. Mr. Chairman, I want to call attention to the fact
that I haven't asked one question yet. I started a half hour ago.
The CHAIRMAN. Can you do it in 15 minutes?
Senator TAFT. I would say about an hour would do it. I don't
think I could get through in 15 minutes.
Senator MILLIKIN. Dr. White, will you agree with me that to the
extent that the fund stabilizes unreal currency values that it renders a
disservice to honest stabilization ?
Mr. WHITE. Could I answer it^this way. I think you would agree
with my answer to the question that the fund to the extent that it
makes mistakes falls short of the ideal and the fund will make mistakes. That is inevitable. The fund will learn. There are differences of view with respect to many of these things, as you have so
well pointed out, on these complicated problems, and I am certain
that if 10 years from now one were to look back one would find decisions that had been made which proved to be unwise in the light of
later developments.
Senator MILLIKIN. But if those mistakes accumulated and were
adhered to, those mistakes would bog down the whole thing ?
Mr. WHITE. Oh, let's put it this way: The fund could be so badly
managed and the decisions made could be so unwise that many of the
good things we expect from the fund would not materialize.
Senator RADCLIFFE. May I ask a question based on Senator Millikin's question ? Assuming a disservice would result from stabilizing
the fund unwisely, as I think you said, wouldn't it be just as easy, if
not easier, to correct that mistake, than if we had done nothing whatever ?
Mr. WHITE. Much easier because the mistake that had been made
by the fund would be apparent in 3 months, 6 months, or a year in this
type of matter, and the fund under the provisions and rules would
have authority to try to correct it.
More than that, it would be in the interest of members that the error
be rectified, and I think also one might add that the mistakes in judgment this fund would make are fewer than would occur in the chaos
which would develop if there was nothing to take the fund's place.
Where there are human beings that have decisions to make, there are
going to be mistakes made.




BRETTON WOODS AGREEMENTS ACT

145

The CHAIRMAN. I would like to put this in the record. This is a
chart which shows the countries on the gold standard between 1921
and 1938. Is that how you would describe it ?
Mr. WHITE. Well, it is just a pictograph of the course of departures
from the gold standard.
Senator TAFT. May I see it ?
The CHAIRMAN. Surely.
Senator TAFT. This just gives the number of countries. It has no
relation to the amount they went off %
Mr. WHITE. That is right. It is a graphic presentation of attempts to go on the gold standard and then departing from the gold
standard.
(The chart referred to is as follows:)
COUNTRIES ON THE GOLD STANDARD, 1921-1938

* Established exchange restrictions

The CHAIRMAN. There is a letter that I received from the American
Farm Bureau Federation. The letter is addressed to me and it encloses a statement by Edward A. O'Neal, president of the American
Farm Bureau Federation, made before the House Banking and Currency Committee on this subject. The letter quotes a resolution
adopted at the annual meeting of the federation in December 1944,
and asks if we will put their statements into the record. I assume
there is no objection to that and they will go into the record.
(The letter and statement referred to are as follows:)
AMERICAN* FARM BUREAU FEDERATION,

Washington, D. C, July 13,1945.
Hon. ROBERT F. WAGNER,

Chairman, Committee on Banking and Currency,
United States Senate, Washington, D.C.
MY DEAR SENATOR WAGNER: At the annual meeting of the American Farm

Bureau Federation in December 1944, the delegate body adopted the following resolution pertaining to international cooperation in a monetary program:



146

BRETTON WOODS AGREEMENTS ACT

"The American Farm Bureau Federation favors the participation of the United
States in the proposed International Monetary Fund and the proposed International Bank for Reconstruction and Development, as outlined in the Bretton
Woods Monetary Conference.
"In adopting these new international institutions, it should be realized that
they are not substitutes for sound domestic fiscal policies. Unless sound domestic and foreign trade policies are adopted by the nations of the world, no planof international monetary stabilization or monetary cooperation will succeed.
"The International Monetary Fund and the International Bank should not be
used as relief agencies in the postwar period, but should be conducted on a business basis, leaving relief grants to other agencies of government. In adopting
this plan, it should be clearly understood that the United States will not provide
funds to perpetuate uneconomic trade practices or unsound monetary policies
through the operation of the stabilization fund. Foreign trade must be developed upon a basis of the exchange of goods and services among the nations of
the world, and not upon the basis of extending credits.
"These proposed international institutions should be operated in such a manner as to promote stability in the general level of prices within the various
countries of the world.
"Since the proposals by necessity leave wide discretionary powers to the
administrators of the two institutions, the individuals chosen to operate these
institutions must be high-type men, representative of the various segments of our
economy, experienced in international affairs, and free from political domination."
During the hearings held by the House Banking and Currency Committee, I
presented an extended statement in behalf of H. R. 3314, which is a part of the
published hearings of that committee.
The Federation favors the Bretton Woods proposals for the fund and the
bank because these programs are an attempt to stabilize the world in the years
ahead and lesson the likelihood of another war.
The total commitments involved on behalf of this Nation in both the bank
and the fund are less than $6,000,000,000. If we can spend over $7,000,000,000
a month to fight a war, if we can sacrifice the lives of thousands of our best
young men, we should be willing to risk nominal sums in an effort to promote
peaceful relationships among nations.
Farmers have always been deeply interested in currency stabilization, for
the reason that the impact of widely fluctuating price levels is always most
severe on the producer of raw materials. It must be apparent to anyone that
in international trade, stabilization of currencies as between nations is just as
important as domestic stabilization.
During the war, our farm production has increased by 33 percent. Experience
proves that once farm production has been expanded, it is very hard to contract.
Unquestionably, within a short time after the close of the war with Japan our
farmers will be confronted with huge surpluses above the requirements of the
domestic market. It is a matter of extreme urgency that we do our utmost to
bring about, at the earliest possible moment, conditions which will facilitate and
encourage the free flow of commodities and manufactured products among the
various nations of the world, so as to open up outlets for our farm surpluses.
This will be impossible unless we bring about currency stabilization as between
nations.
*
Without such stabilization it is more than likely that a general shortage of
dollar exchange will develop in many of the foreign nations which are potential
buyers of our agricultural commodities and the free exchange of goods and services between nations will be seriously curtailed. The beneficial effects of trade
and commerce in maintaining peaceful relations would be lost.
House passage of H. R. 3314 on June 7 by a vote of 345 indicates that public
opinion in the United States is overwhelmingly in favor of this country's participation in the International Monetary Fund and the International Bank for Reconstruction and Development. We earnestly hope that this measure will receive
similar support in the Senate, and that the members of the Senate Committee on
Banking and Currency will join in nonpartisan support of the bill and report it
favorably at an early date.
I shall greatly appreciate it if you will include this letter in the record of the
hearings before your committee on the bill.
Sincerely j^ours,




EDW. A. O'NEAL, President.

BRETTON WOODS AGREEMENTS ACT

147

STATEMENT OF EDWAED A. O'NEAL, PRESIDENT, AMERICAN FARM BUREAU FEDERATION,
BEFORE THE SENATE BANKING AND CURRENCY COMMITTEE, ON THE PROPOSED INTERNATIONAL MONETARY FUND AND THE PROPOSED INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

On behalf of the American Farm Bureau Federation, I wish to testify in favor
of the participation of the United States in the proposed International Monetary
Fund and the proposed International Bank for Reconstruction and Development,
as outlined at the Bretton Woods Monetary Conference. The American Farm
Bureau Federation, of which I am president, represents about 830,000 farm families in 45 States; thus our membership represents approximately 3 ^ million
farm people. These farm families, who have sacrificed their sons on far-flung
battlefields throughout the world, and who have also labored long and hard in
order to produce food for the war effort, are vitally interested in international
cooperation. While we may not understand all the technical details of international finance, we do know that the results of chaotic international monetary
conditions have fallen very heavily upon the farm people of our Nation.
At our annual meeting, in December 1944, the delegate body adopted the following resolution pertaining to international cooperation on a monetary program:
"The American Farm Bureau Federation favors the participation of the United
States in the proposed International Monetary Fund and the proposed International Bank for Reconstruction and Development, as outlined in the Bretton
Woods Monetary Conference.
"In adopting these new international institutions, it should be realized that
they are not substitutes for sound domestic fiscal policies. Unless sound domestic
and foreign trade policies are adopted by the nations of the world, no plan of
international monetary stabilization or monetary cooperation will succeed.
"The International Monetary Fund and the International Bank should not be
used as relief agencies in the postwar period, but should be conducted on a
business basis, leaving relief grants to other agencies of government. In adopting
this plan, it should be clearly understood that the United States will not provide
funds to perpetuate uneconomic trade practices or unsound monetary policies
through the operation of the stabilization fund. Foreign trade must be developed
upon a basis of the exchange of goods and services among the nations of the
world, and not upon the basis of extending credits.
"These proposed international institutions should be operated in such a manner
as to promote stability in the general level of prices within the various countries
of the world.
"Since the proposals by necessity leave wide discretionary powers to the administrators of the two institutions, the individuals chosen to operate these institutions must be high-type men, representative of the various segments of our
economy, experienced in international affairs, and free from political domination."
Some groups seek to change these proposals. Such action might delay their
adoption indefinitely. We do not say that the proposed international monetary
organizations are perfect in every respect, but we Co feel that they represent a
l
tentative agreement among the financial experts of over 40 nations on some kind
of a monetary program. We believe that this is a significant step. The following statement, which was contained in the prelude to our resolution dealing
with international cooperation, in which our organization went on record as
favoring the principles of the Dumbarton Oaks peace plan, the International
Food and Agriculture Organization, and the Bretton Woods proposals, is particularly applicable to the present situation:
"Another war within 25 years cannot be tolerated. Past policies have not
been effective in maintaining world peace. It therefore behooves every thoughtful citizen to be courageous in developing plans to prevent future wars. This is
an extremely difficult and involved problem. Honest differences of opinion will
exist among nations and among individuals within nations. These differing
opinions must be fully expressed; then, after thorough discussion, constructive
plans for international cooperation must be developed. Since these plans by
necessity will be the result of compromising many conflicting interests, complete agreement by all citizens on all details cannot be expected. These minor
differences should not prevent cooperation by this Nation on sound international
proposals."




148

BRETTON WOODS AGREEMENTS ACT

The farmers of the Nation are looking to Congress for leadership, and they
are hoping that this distinguished body will exercise intelligent judgment and
demonstrate a willingness to cooperate in plans which will lessen the likelihood of another war within the next generation. Certainly if we can spend over
$7,000,000,000 a month to fight a war, if we can sacrifice the lives of thousands of
our best young men, we should be willing to risk nominal sums in an effort to promote peace:ul relationships among the nations. The total commitments involved on behalf of this Nation in both the bank and the fund are less than
$6,000,000,000. Furthermore, barring extremely unfortunate experiences, the
most of these funds will be an investment, not an expenditure. Between June
1940 and December 1944, our total commitments on the war program amount to
390.5 billion dollars. Our cash war expenditures to that date amounted to 244.5
billion dollars. In spite of heavy taxation, it is estimated that our national
debt will be in the neighborhood of $300,000,000,000 at the close of the war. We
have spent over $36,000,000,000 for lend-lease during this war period. These
gigantic figures cannot be cast aside lightly. We must diligently seek methods
of international cooperation which will lessen the likelihood of repeating the
catastrophe in which we are now engaged. Let it not be said of this Congress
that they refused to try. It will be better to have tried and failed, than not to
have tried at all.
We believe that the proposed bank and the proposed fund are a necessary part
of international cooperation, and also necessary for a satisfactory domestic
economy. As we understand it, one of the primary purposes of the International
Monetary Fund is to prevent the misuse of monetary manipulations (e. g., currency depreciation and exchange control), for the purpose of improving the
competitive position of domestic producers, while the International Bank for
Reconstruction and Development will facilitate international loans for the postwar reconstruction and the economic development of undeveloped areas and
thus facilitate a larger volume of trade.
We farmers have seen our markets disappear. We have experienced widely
fluctuating prices. The history of this Nation shows that farmers have always
been interested in monetary policies and have taken active parts in various
types of monetary reform. Their interest in monetary policy is because they
are the ones who have borne the brunt of widely fluctuating price levels. We
believe that one of the biggest contributions the proposed fund will make is in
getting the nations of the world around a table and keeping them there, which
will provide a method through which national and international monetary problems can receive proper consideration and attention.
Since monetary matters are basic to economic cooperation and also to most
other kinds of cooperation, we believe that it is entirely appropriate for the
Congress to consider these proposals early on the list of legislation involving
international cooperation. It would be fine if these monetary organizations
could receive congressional approval prior to the conference on a world peace
organization.
There is much discussion about maintaining full production and full employment during the postwar period. If we are going to even approach these desirable goals, we must trade with the rest of the world. We cannot trade with
other nations unless there is a satisfactory method of handling foreign exchange.
We have experienced new forms of international trade barriers in currency wars
and exchange manipulation. These are likely to be worse, not better, in the
postwar period unless there is some kind of an international stabilization fund.
We know that this proposed fund or the bank cannot possibly be a substitute for
sound domestic economies, and that if any nation is going to export products it
must also import. But we do not believe that the fund especially will focus
attention upon uneconomic trade practices and encourage steps to be taken to
correct such practices.
The effect upon foreign trade in both agricultural and industrial products is
one of the biggest stakes the farmers of the Nation have in the proposed International Bank, and particularly in the proposed fund. Export markets are vital
to large segments of American agriculture, and incidentally 43 percent of our
population lives in rural areas—23 percent being on farms and about 20 percent
in rural areas but not on farms. Over the past 40 years we have exported about
58 percent of our production of cotton, about 38 percent of our production of
tobacco, about 21 percent of our production of wheat, nearly 30 percent of our
lard, 18 percent of our rice, and about 7 percent of our pork (p. 1 of statistical




BRETTON WOODS AGREEMENTS ACT

149

appendix). The cotton farmer cannot survive without export markets, and cotton is the basic industry in much of the South. According to the Agricultural
Adjustment Agency, 10,000,000 people on 2,000,000 farms depend on cotton as their
chief source of income. Tobacco, which is dependent upon export markets as an
outlet, is also an important agricultural product in the South.
The total volume of agricultural exports has been declining, particularly since
1929 (p. 2 of the statistical appendix). Part of this has been due to the
industrialization of our Nation, part of it to high tariffs, and undoubtedly part
of it to the manipulation of foreign currencies and exchange rates. Exports of
cotton in 1935-39 were about a third less than 10 years earlier. Wheat exports
had dropped by nearly two-thirds. Lard exports had declined to only about
a fifth of their former volume.
I consulted with the Office of Foreign Agricultural Relations of the United
States Department of Agriculture concerning how the misuse of monetary policies during the 1930's had handicapped the foreign" trade in agricultural products.
They tell me that the prevention of the use of monetary manipulations to secure
trade advantage over other countries is in the interest of United States agriculture. Through the thirties our agricultural exports suffered from such manipulations.
The position in the world market of competing agricultural exporters, such as
Argentina in the case of wheat and Brazil in the case of cotton, was improved by
reductions in the exchange value of their currencies, which enabled them to
sell at a low price in other countries.
On the other hand, importing countries have, through currency manipulations,
diverted their purchases of agricultural products from the United States to other
countries.
An outstanding example of this latter type of currency manipulation was Germany, which, from the beginning of the thirties, forced many countries that
depended largely on the German market (such as countries in eastern and southeastern Europe and the larger of the Latin-American countries) to trade with
her on her own terms. Since the United States would not accept those terms,
Germany shifted her purchases of cotton, wheat, and other important products
from the United States to other countries. The decline in German imports from
the United States is illustrated by the examples given on page 6 of the Statistical
Appendix.
In essence, the Germans offered agricultural export countries that suffered
under the burden of accumulating surpluses a market for large quantities, sometimes the entire crop, and a price above the world market price. She paid,
however, in reichsmarks that could be used only for direct purchases in Germany*
and only for purchases of such commodities as the German authorities permitted
to be sold for export. What that meant in practice is shown by the fact that,
in order to use up the reich mark balances accumulated through exporting to
Germany, countries had, in many instances, to buy large amounts of commodities
for which they had little use. For example, Yugoslavia was compelled to buy
huge quantities of aspirin. Rumania many thousands of typewriters, and Greece
mouth organs by the hundred thousands.
Moreover, Germany kept for herself only part of the agricultural products that
she bought in such a manner. The rest she resold in the world market, and
frequently for less than the purchase price. By this manipulation Germany
obtained dollars and other free exchange, while countries like Greece, Bulgaria,
and Turkey, which had sold Germany large quantities of their tobacco and raisin
crops, found the rest of their foreign market ruined by German resales at cut
prices. Germany also resold high-quality Colombian coffee in competition with
Colombian coffee exporters, and similar resales were reported for Argentine and
Brazilian articles.
While the producers of cotton, wheat, tobacco, rice, and certain fruits are
vitally interested in export markets, all agricultural producers have reasons to be
concerned in the development of foreign trade. Records show that during this
war period our total volume of agricultural production has increased 33 percent
above the prewar level (p. 3 of statistical appendix.) History also indicates that
once agricultural production is expanded, it is very hard to contract. We are
going to need not only good domestic markets, but also active foreign markets
in order to meet the postwar situation in agriculture. If outlets cannot be found
for those agricultural products normally exported, then it will mean that the
producers of those commodities have no alternative but to turn to the production




150

BRETTON WOODS AGREEMENTS ACT

of products for the domestic markets, ample supplies of which will already be
available. The farmer's stake in world trade is manyfold: first as an outlet for
the commodities he produces ; secondly, as the source of getting supplies and materials he needs for an increased standard of living and lower production costs; and,
third, as an encouragement of active business conditions, which gives him better
domestic markets.
Realizing the importance of international trade to agriculture, at our last annual
meeting we passed a resolution on this subject in which among other things we
recommended the following:
1. Calling an international trade conference to consider lowering of barriers
to trade, and to discourage erection of barriers in the future.
2. That the United States participate in international action on monetary and
credit policies designed to stabilize currencies and prices.
3. That foreign and domestic barriers be gradually adjusted or removed.
4. That the trade-agreements program be improved and expanded.
5. That new and improved international trade agreements for surplus agricultural products be developed.
6. That all nations be given access to the raw materials needed for their peacetime economies.
7. That our Government adopt a positive program to develop world trade.
Foreign trade is also vitally important to the manufacture of many nonagricultural products of this Nation (p. 4 of the statistical appendix). Records show
that for the period 1936-38 about 17 percent of our total exports went to the United
Kingdom, about 15 percent to Canada, 8 percent to Japan, 5 percent to France,
5 percent to the West Indies and Bermuda, 4 percent to Germany, and 2 percent
to Italy. When these figures are considered in the light of a realistic world, the
need for some uniform exchange mechanism becomes apparent.
We believe that the International Bank for Reconstruction and Development
will also make a significant contribution. In the absence of special measures
facilitating the export of capital from the United States, it is probable that a
general shortage of dollars, such as prevailed during most of the thirties, will
again develop in those foreign countries that are potential buyers of our agricultural products. In such a case, foreign governments are again likely to reserve
the bulk of their supply of dollars for the purchase of United States industrial
goods, especially tools and machinery, which 'they will want in considerable
quantity. The consequence of such an action would be to divert their agricultural
purchases to exporting countries whose currencies are not scarce. In other
words, if enough exchange dollars are not available in these countries, they will
look to nations other than the United States for their needed food and fiber
supplies. The recurrence of such a situation may be prevented if the export of
United States capital is facilitated by measures such as the establishment of the
International Bank for Reconstruction and Development.
The loans of the bank will be made only after adequate investigation into the
purposes for which the money is to be used. This should not only prevent unsound
lending of the kind carried on during the twenties, but it should also offer an
opportunity for taking into consideration the legitimate interests of United States
agriculture. In making or guaranteeng a loan, the bank is to take into consideration not only the interests of the borrowing country but also the interests of the
member countries as a whole.
Agriculture has a very great stake in a sound money program. Farmers have
not forgotten that between 1920 and 1940 there were over two and a quarter
million farm foreclosures. This is equivalent to more than one farm in every
three being foreclosed. Within the lifetime of most farmers, according to average figures reported by the Department of Agriculture, they have seen the price
of corn range from 19 cents a bushel to over $1.88 a bushel. They have sold
wheat for 32 cents a bushel; likewise, they have sold it for $2.56 a bushel. They
have sold hogs for $2.59 a hundredweight, and they have sold them for over $20
a hundredweight. They have seen the price of cotton fluctuate from 4.6 cents
a pound to 38.5 cents a pound. Within the short space of 15 years, farmers have
seen the price of many of the major products drop until they sold for only one-




151

BRETTON WOODS AGREEMENTS ACT

eighth of their former values (p. 5 of statistical appendix). Practically no
other segment of our economy has experienced such violent fluctuations in the
prices received for the products of their labor. They realize that part of this
fluctuation has been due to changes in industrial employment and to changes
in the purchasing power of consumers. Part of it has been due to changes in the
supply of various products, part of it to changes in the export demand. Likewise, part of it has been due to changes in domestic and international monetary
conditions.
While farmers are willing and anxious to participate in international monetary
agreements, in the near future they are going to request the Congress to take
progressive steps to develop a coordinated peacetime program of domestic price
stabilization along with monetary activities. Farmers want a policy in the
future which will give a parity of exchange value among all groups of our
economy. They are not interested in perpetuating a dollar which will be subject
to wide fluctuations in purchasing power, due to changes in monetary conditions.
They realize that to tie the value of dollars and other currencies to the value of a
commodity such as gold may at some future date cause some undesirable price
movements. However, they feel that with, the chaotic conditions in the world,
with practically every nation of the world using a different monetary system,
that if chaotic international exchange is to be avoided, it is necessary to stabilize
on some common terms. Surely if conditions arise where it is necessary to make
adjustments in the monetary program, there will be intelligence enough in such
an international organization to make the needed changes, rather than holding
tenaciously to some predetermined standard which will again make money the
master of men, rather than men the masters of money.
I have not attempted to go into the technical details of the proposed bank and
the fund. I have attempted to show that the farmers of the Naion favor hese
proposed organizaions as an attempt to improve the chaotic conditions which
have existed in the past, and as an attempt to cooperate with other nations of
the world with the hope of lessening the likelihood of another war. They want
to see our cooperation on a sound basis. They believe Congress should exercise
its authority and control over the participation of the United States in international programs. They know that this fund or this bank cannot be a substitute
for sound domestic economies within the various nations of the world. They
believe that the proposed fund and the proposed bank, if properly administered,
will be aids but not cure-alls in stabilizing the world during the years ahead.
Likewise, they believe that these organizations may make a contribution to
world peace, and after all history clearly demonstrates that war is a most disrupting instrument to international trade, to internal finance, to stable prices,
to a balanced economy, to say nothing of the heartaches caused in the homep
of all peoples.
Percentage of total United States production of wheat, cotton, tobacco, rice, pork]
and lard exported, ~by 10-year periods, 1900-1939
1

Percent domestic exports are of total production of—
Period
Wheat

1900-1909
1910-19
1920-29
1930-39

-

-

40-year average

-,

Cotton

Tobacco

Rice

Porki

21.9
24.2
26.1
9.1

67.1
68.3
56.6
50.0

35.4
37.0
38.8
31.4

7.4
16.5
27.2
16.2

10.0
11.4
6.9
1.6

34.8
30.9
34 8
18.5

20.6

57.6

35.6

18.4

7.2

29.8

i Excludes lard.
Source: Weighted averages for 10-year periods, calculated from Agricultural Statistics, 1942.




Lard

152

BRETTON WOODS AGREEMENTS ACT

During the 1930's, approximately 50 percent of our cotton production, 9 percent of our wheat crop, and 31 percent of our tobacco was exported. For these
three crops, a smaller proportion was exported than during any of the preceding
decades. Wheat exports dropped from 26 to 9 percent of our production between
the 1920's and the 1930's. At the beginning of the century, we exported nearly
two-thirds of our cotton production.




153

BRETTON WOODS AGREEMENTS ACT
QUANTITIES OF UNITED STATES AGRICULTURAL EXPORTS, 1915-39

Index
(1924-29=100)

.

Quantities of United States agricultural exports, by 5-year periods, 1915-39 1
[Index numbers, calendar years 1924-29=100]

Period

1915-19
1920-24
1925-29__._ .
1930-34
1935-39 .

Total Cotton, Agricul- Tobactural,
agricul- includ- except co, unmanuing
tural
cotton factured
linters
106
103
98
73
60

68
74
101
90
67

141
130
95
57
53

91
91
104
87
85

Fruits

Wheat
and
flour

38
56
105
107
109

120
140
92
40
34

i Simple average of index numbers by 5-year periods.
Source: U. S. Department of Agriculture, Agricultural Statistics, 1942, p. 540.




Other
grains

Cured
pork

94
22
64

322
180
78
29
16

Lard,
including
neutral
67
113
95
63
22

154

WOODS AGREEMENTS ACT

BRETT

il production in the United States, 1909-44

Volume of agricul

[Index 1935-39=100]

Year

1909
1910
1911
1912
1913
1914
1915
1916
1917
1918
1919
1920
1921
1922
1923
1924
1925
1926

Ti
f
c
pro

Total
agricultural
3 products J

79
79
83
1

85
81

86
86
83
86
90

&

91

8
84

92
83

92

91

95
97

94
98

93
97

97
100

Year

1927
1928
1929
1930
1931
1932
1933 . .
1934
1935 . .
1936
1937
1938
1939
1940
1941
1942
1943
1944 2

Total
Total
agriculfood
tural
products products!

97
100
97
98
100

96
97
100

98
102
99
98
102
%
96
93

93
97

91
94

101

106

103
106

103
105

111

110

115
125

113
124

132
137

129
133

1

Includes in addition other feed grains, hay, cotton, tobacco, hops, soybeans, flaxseed, wool, and mohair.
Preliminary.
Source: U. S. Department of Agriculture, Bureau of Agricultural Economics, the National Food Situation
October 1942 and January 1945.
2

•45
The total volume of agricultural production in 1944 was 33 percent above the
prewar average and over 47 percent greater than the 1918 production. Favorable
growing weather, improved farming methods, and hard work on the part of farm
families have resulted in the greatest volume of agricultural production in our
history.




BRETTON WOODS AGREEMENTS ACT

155

Percent of production of leading commodities exported, 1929, 1933, 1938 and 1941
Percent exported
Commodity
1929

Crude materials:
Tobacco leaf
Cotton
Anthracite coal
Bituminous coal.
Crude petroleum.
__.
Phosphate rock
Foodstuffs and beverages:
Meat products
Lard
Milk, condensed, evaporated, and dried.
Rice
Wheat
Cottonseed
_.
Canned vegetables
Grapefruit, fresh
_ _
Oranges, fresh .
__
Apples fresh
Pears, fresh
Dried fruits
._.
_.
Canned fruits
Semimanufactured and finished manufactures:
Leather
Cigarettes
Cornstarch and corn flour
Cotton cloth including duck
Lumber and timber
Paper and manufactures
Coke
Refined mineral oils
Petroleum asphalt

_

__

_

_.

_.

._

._

. - _ .

Sulfur, crude (shipments) _ _ . . .
_
Rolled iron and steel products
Plates and sheets (iron and steel)
. . . .
Tubular iron and steel products
__
Aluminum (ingots, plates, sheets bars, etc.)
Copper, refined
.
_
Lead, refined
Zinc (slabs, plates, blocks, sheets, etc.)
Agricultural implements and machinery
Automobiles (cars, trucks, busses)
Aircraft and parts, including engines

..

1938

1941

41
55
5
3
3
41

_

..

1933

..

39
66
2
3
4
45

29
30
4
3
6
52

12
8
6
4
2
38

3
34
4
33
18
13
3
7
10
16
16
46
23

1
24
2
15
5
7
1
9
7
14
19
39
21

1
12
1
21
12
3
1
6
10
7
16
36
13

3
17
15
26
5

9
7
22
7
8
4
2
20
12
35
6
6
6
8
36
9
3
25
13
10

6
2
6
4
9
3
2
12
8
32
3
3
5
7
41
9
1
30
7
27

5
4
4
4
4
3
2
11
5
36
8
9
5
4
53
12
1
17
14
27

(l)

4
6
1
2
35
18
4
4
17
5
2
4
1
11
3
21
10
7
7
13
11
2
•

11

14
7
56

* Less than 0.5 percent.
NOTE.—For details concerning appropriate footnotes, see table 33, pp. 53-54. Summary of Foreign Trade
of the United States, Calendar Year 1941, May 1944, U. S. Department of Commerce/Bureau of Foreign
and Domestic Commerce.

In 1938 the following proportions of our production of various agricultural
products were exported: Cotton, 30 percent; wheat, 12 percent; leaf tobacco, 29
percent; lard, 12 percent; rice, 21 percent; oranges, 10 percent; apples, 7 percent;
dried fruits, 36 percent; and canned fruits, 13 percent. In this same year, the
exports of coal amounted to approximately 3 percent of the production; crude
petroleum, 6 percent; phosphate rock, 52 percent; leather, 5 percent; lumber
and timber, 4 percent; coke, 2 percent; refined mineral oils, 11 percent; crude
sulfur, 36 percent; aluminum, 4 percent; refined copper, 53 percent; refined lead,
12 percent; and zinc, 1 percent.

75673—45



156

BRETTON WOODS AGREEMENTS ACT
PRICES RECEIVED AND PRICES PAID BY FARMERS, 1910-44

1945,
Value of principal agricultural products imported by Germany from the United
States in specified years, 1929-37
[Value in millions of reichsmarks *]
Commodity
Wheat
Cora
Nontropical fruits
Lard and tallow
Cotton (raw, waste, and linters)
Tobacco
Besins, gumlae, and shellac

1929

1930

1933

1934

48.6
22.1
69.8
106.7
618. 5
14.2
18.4

34.1
1.2
55.1
73.7
427.6
13.9
14.4

1.9
.4
38.3
31.9
223.1
4.7
6.5

1.3
.5
30.6
9.5
146.1
4.0
4.6

1 Official exchange value of reichsmark remained unchanged during this period.
2 Less than 50,000 reichsmarks.
Source: Office of Foreign Agricultural Relatons, U. S. Department of Agriculture..




1937
(2)

2.1

1.9<
(2)
78.4
4.4
3.1

157

BRETTON WOODS AGREEMENTS ACT

Percent of total value of principal agricultural products imported by Germany
that came front United States in specified years 1929-37
Commodity

Wheat
Corn
Nontropical fruits.
Lard and tallow.

Cotton (raw, waste, and linters)
Tobacco
Resins, gumlac, and shellac

1929

1930

1934

Percent Percent Percent
14.7
2.1
1.3
2.1
27.2
28.1
68.4
37.7
73.7
56.1
75.9
5.4
3.2
5.7
30. 2
31.6
21.6

_. 10.8
18.6
_ _ 32.9
_
75.0

1937

1937

Percent Percent
1. 3
1.3

0)

1.9

(0

28. 3

3. 6

14. 5

0)

1.9

0)

28. 5

3. a

14. &

i Less than 0.05 percent.
Source: Ibid.

Senator TAFT. The Grange has also devoted a great deal of attention to it and they take the opposite view from the American Farm
Bureau.
Mr. WHITE. They did at first; but I believe they changed their
minds after they had an opportunity to study the plan.
The CHAIRMAN. AS they began to learn of the proposal they became convinced that it was a wise thing.
Well, now, I think we ought to meet Monday morning at 10: 30.
Senator TAFT. I can get through with Mr. White in the morning
if I have reasonable assistance from the other Senators.
The CHAIRMAN. The meeting is adjourned until 10:30 Monday
morning.
(Whereupon, at 12: 30 p. m., an adjournment was taken until Monday, June 18,1945, at 10:30 a. m.)
(The following statement was later received for the record:)
STATEMENT OF THE NATIONAL LEAGUE OP WOMEN VOTERS FOR THE SENATE BANKING
AND CURRENCY COMMITTEE ON THE BRETTON WOODS AGREEMENTS

The National League of Women Voters testified before the House Banking and
Currency Committee in support of the Bretton Woods agreements. We wish
to renew our statement of support for the Senate. We appreciate the work of
the members of the House committee in presenting a bill which members of
both parties could support, and did support with an unusual degree of unanimity
in the House. As a nonpartisan organization concerned with government and
with the development of policies in the public interest, we urge on you especially the significance and importance of a bipartisan consideration of Bretton
Woods. At no point should questions of foreign policy become the object of
political strategy. Action on these agreements should represent a decision in.
which we stand united as a Nation, thus reassuring other nations of our stability for the difficult reconstruction period ahead.
These agreements are, we believe, of unusual value because they have been
developed on a multilateral rather than a unilateral basis. By cooperation*
more evidence becomes available, different points of view are considered, and
wiser decisions are reached. All nations are concerned with monetary problems. The burden of solving them, therefore, should rest on every country,,
not just on the United States, and all should share the financial risks of the
reconstruction period. These risks are inevitable, but can be mitigated under
the Bretton Woods plan for joint action and conference.
The League of Women Voters publishes a memorandum series on items in
our program. The memorandum on Bretton Woods has had one of the highest
sales in our history, and has been in use in practically all of our 550 local
leagues. Correspondence has also been especially heavy. Our members are
therefore deeply aware of the significance of this issue as a foundation for economic cooperation and the achievement of world peace.







BRETTON WOODS AGREEMENTS ACT
MONDAY, JUNE 18, 1945
UNITED STATES SENATE,
COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C
The committee met at 10:30 a. m., pursuant to adjournment on
Saturday, June 16,1945, in room 301, Senate Office Building, Senator
Robert F. Wagner, chairman, presiding.
Present: Senators Wagner (chairman), Radcliffe, Downey, Murdock, Fulbright, Taylor, Tobey, Taft, Butler, and Millikin.
The CHAIRMAN. The committee will come to order. Dr. White,,
we will go on with you and hope to finish. Incidentally, we will have
to quit at quarter to 12.
STATEMENT OF HARRY D. WHITE, ASSISTANT SECRETARY OF THE
TREASURY, WASHINGTON, D. C—Resumed

Mr. WHITE. I don't remember just where we left off. I can proceed
with my discussion or I will be glad to just answer questions.
Senator FULBRIGHT. Before we go any further there is one point
I would like to have cleared up, Mr. Chairman.
The CHAIRMAN. Very well.
Senator FULBRIGHT. They say that when the dollars run out, then
America will be in the position that if we don't put up more dollars or
make arrangements to continue a greater supply of dollars, we are in
the position of sabotaging this plan or of being "Uncle Shy lock." I
would like to have you clarify as much as you can what happens when
dollars are exhausted or become scarce.
Mr. WHITE. Senator, I think that is a rather important question
and I would like to answer it in two brief parts.
Senator TAFT. May I say that that is part of my question too, and
I suggest that the committee turn to article VII, Scarce Currencies,
and ask Mr. White to explain just how it works.
The CHAIRMAN. What page is that ?
Senator TAFT. Page 13.
Mr. WHITE. I would like to explain first how it works and then
answer your question.
Senator FULBRIGHT. Yes. I would like to have that question developed.
Mr. WHITE. The provision operates as follows: Dollars are being
withdrawn from the fund and dollars are coming back. There will
be dollars coming in and there will be dollars going out. We expect
that a lot of the countries will want dollars and the dollars will be
159



160

BRETTON WOODS AGREEMENTS ACT

going out of the fund; later dollars will also be coming back; not
immediately, but after 6 months, a year, or two, because there will be
always some repurchasing going on. So you have a continual outflow
and a continual inflow, but in the case of dollars I think it is quite
reasonable to expect that the outflow will be greater than the inflow
for a few years.
Senator FULBRIGHT. Because our exports will be greater than our
imports ?
Mr. WHITE. Yes. That would be the chief cause.
Senator TAFT. Are you speaking of the immediate postwar period ?
Mr. WHITE. Of the first 2, 3, 4, or 5 years. There is a difference of
opinion how long that period will last.
Senator DOWNEY. TO what extent would incoming interest or
dividend payments to the United States above what we would be
paying out be a factor in that? Wouldn't that be a considerable
factor, Mr. White?
Mr. WHITE. It will be a smaller factor in the first few years,
Senator Downey, than it was in the past, because there has been a
good deal of repurchasing of our foreign investments, but it will be
a substantial factor. I will give you the exact figures in a moment.
My colleague, Dr. Bernstein, will give you that.
Mr. EDWARD M. BERNSTEIN. In 1989 the nationals of this country
received $541,000,000 in interest and dividends from abroad. In turn
the nationals of foreign countries received $230,000,000 in interest
and dividends in this country.
Senator MILLIKIN. Would you mind repeating that? Just that
last figure.
Mr. BERNSTEIN. The nationals of foreign countries received
$230,000,000 in interest and dividends from investments in the United
States. The net excess of income of Americans from foreign investments, in excess of the income of foreigners from American investments was $311,000,000. As Mr. White indicated, during the war
considerable investments of the United Kingdom and other countries
have been liquidated in this country, so that after the war you would
be starting off with smaller foreign investments. Simultaneously
we have been repatriating our own investments abroad. They will
both be lower when the postwar period begins.
Mr. WHITE. I would be inclined to guess that our interest and
dividend receipts on investments that are coming to us would be in
the order of a half billion dollars a year immediately after the war
and that it will begin to increase rather quickly on the assumption
we will be making an increased amount of investments in foreign
countries.
Senator DOWNEY. Thank you.
Mr. WHITE. Coming back to Senator Fulbright's question, the demand for dollars being in excess of the supply, as I say, the dollars
in the fund will be decreased. We start with a couple of billion dollars
in the fund and another 1.8 billion dollars in gold. As the dollars
in the fund decline over the months, and they are watched closely,
to a level, say, of around a billion dollars, the fund would begin
to do something. One of the things the directors might do would
foe to supplement their dollars in the fund by selling some of the gold




BRETTON WOODS AGREEMENTS ACT

161

that is in the fund. They will have a substantial amount of gold.
They will sell that gold to the Treasury and purchase more dollars—
that is, gold that is contributed by the United States and by all other
countries. Let us assume that process of the increasing outflow of
dollars as against the inflow of dollars will continue. The dollars continue to do down. When they will have reached a level which would
have to be judged at that time as being a sort of a red signal, if you
like, they will use the rest of the gold they have to supplement it and
they will do something else. They will make a report to the executive
committee—the technical staff will—as to the causes of the continual
outflow of dollars. Now, the cause of sustained net outflow, or rather
the causes—there is always more than one cause—may be that some
of the countries are purchasing more imports than they should. I t
may be that the United States is selling far more than it is buying, and
is making no attempt to modify that situation. In any case, that
report will go to the committee and it may issue that report in original
or revised form or they may not. It may issue a report and make
recommendations around the table to the representatives of the United
States and other countries as to what might best be done to begin to/
modify the situation. Let us assume that, notwithstanding the report
and the suggestions, the dollar balances in the fund continue to decline.
When dollars reach a certain level w^hich in the opinion of the fund is
what they might call the level of scarcity—that possibly would be in
the neighborhood of a half billion dollars or so—they would then
announce to the member countries that dollars are scarce in the fund.
May I digress just a moment to point out that in the absence of a
fund dollars would have been scarce just the same, except they would
have been scarce a long time before. The effect of the fund would
be to postpone the scarcity by supplying dollars which would otherwise not be available.
Senator TAFT. Unless loans were made, in other words?
Mr. WHITE. We might say unless there were other arrangements
made to supply dollars, and that is one of the things I want to bring
out in connection with this in a moment. When the fund announces
that dollars are scarce, it would be a formal announcement. It is
required by one of the provisions to issue a report which would be
carefully prepared, indicating the causes of that scarcity and possibly
recommendations for alleviation of the difficulty. Now, what happens when the fund issues the report that dollars are scarce? Two
things. The countries that are members are relieved of their commitment not to place any limitations on the sale of dollars. In other
words, a member country cannot say prior to this declaration of
scarcity of currency that the amount of dollars that will be granted
to any particular importer shall be limited unless it is during the
transition period or unless the fund approves of it. But after dollars
are declared scarce member countries can ration dollars. They can
say to importers. " You can have only so many dollars. You can have
a permit to purchase only so many dollars," or "You can import and
pay for only certain categories of goods and not others." In other
words, they can do precisely what they do in the absence of the fund
and precisely what they have been doing in the last 10 years. They
have got to do that because




162

BRETTON WOODS AGREEMENTS ACT

Senator MILLIKIN. Mr. Chairman, may I interject
The CHAIRMAN. Yes.
Senator MILLIKIN. I would like to ask whether that

a question? -

is another way
of saying that at that point this fund and this scheme would have
the power to regulate our exports.
Mr. WHITE. NO. That would be a little misleading, I think, Senator. The fund cannot regulate our exports at all. Members individually can decide which of our exports they will buy the same as
they do now, or as they will after the war, and as they did before the
war. In other words, if a resident of country X wanted to buy certain goods in the United States, he had to get an exchange permit
first because country X didn't have enough dollar exchange to supply
the demand in country X. There are many countries which do not
have enough dollar exchange to sell to all who wish to buy dollar
.exchange. Therefore they have to ration it. They could say, "First
come, first served," as long as the limited supply lasts, or more likely,
"We will give exchange permits up to a certain amount for the importation of machinery or up to a certain amount for the importation
of food, and so forth." In other words, they have to ration the
exchange among the various claimants. That has nothing to do with
the fund.
Senator TAFT. They can freeze sterling balances in this country and
say, "You cannot have any dollars to pay your sterling debts."
Mr, WHITE. I am not sure I understand that. Do you mean they
could freeze all our American holdings of sterling in London ?
Senator TAFT. They could refuse to give the British dollars to pay
their debts in the United States.
Mr. WHITE. Oh, yes. The fund doesn't cause that. The countries
now do that anyway. All that the fund does is to say that while dollars are scarce in the fund, the limitation on exchange is temporarily
restored.
Senator MILLIKIN. Well, under the fund or without the fund, whenever you reach a position of dollar scarcity, you reach a point where
you are modifying our export policies.
Mr. WHITE. They are not buying as much as they would like to,
maybe. Each country would determine for itself what dollars they
would permit their citizens to buy, but that is exactly what has been
going on in the last 15 years.
Senator MURDOCK. Have we ever found it necessary in this country to adopt similar procedures with reference to any other country?
Mr. WHITE. Oh, no, Senator. The reason is that we have more
than an adequate supply of gold so that our citizens can buy anything
anywhere except for shipping and other restrictions during wartime?
Senator FULBRIGHT. In addition to that, for about 20 years our export balance has been roughly a billion dollars more than our imports, in round numbers; isn't that true?
Mr. WHITE. Yes; but a more significant figure, Senator Fulbright,
would be one which included, in addition to exports and imports of
goods, tourist expenditures and services and that sort of thing, because
they have the same effect as exports and imports of goods.
Senator FULBRIGHT. And loans?
Mr. WHITE. That is a very important factor. If you take our purchase of goods and services and also the tourist expenditures and in


BRETTON WOODS AGREEMENTS ACT

163

terest payments and other current items, you would find that that
comes to a very much smaller amount than a billion a year net. In
the period from 1934 to 1938, inclusive, taking that period so as to
miss the depression and the war, you will find foreign countries owed
us on current account only a billion dollars for the entire last 5-year
period before the war.
Senator DOWNEY. YOU are not justified in putting the balance on
tourist trade in those items, are you? That has a contrary effect.
Mr. WHITE. NO, Senator. Our expenditures for tourist trade is
just the same as imports so far as our balance of payments in concerned.
Senator DOWNEY. YOU were stating the causes that gave us a favorable balance, on which we could trade upon for our exchange, while
tourist expenditure is one in favor of the other countries.
Mr. WHITE. Oh, yes; you are quite right. We have frequently been
accused of exporting so much more than we have been importing as to
create trouble for other countries, and people frequently overlook the
fact that our tourists spend large sums of money which are equivalent
to imports.
Senator DOWNEY. They leave that out?
Mr. WHITE. That is too frequently overlooked.
Senator DOWNEY. That is about $300,000,000 a year, isn't it?
Mr. WHITE. It has been even more than that in some years and it
will probably be much larger, we expect, after the war—after the
headache phase of postwar adjustment passes.
So, to come back, when a period of scarcity is declared for a currency, then the situation so far as each foreign country is concerned,
returns to what we might call the prefund condition, and that continues until there are enough dollars coming back into the fund so
that the scarcity no longer exists.
Now, there has been some expression of opinion that a scarcity of
dollars will develop. I want later to indicate why we do not believe
that is likely to happen. But if it should happen, there has been an
assumption that the fund would break down or no longer be able to
operate, the fund would be frozen, the critics say. Nothing could
be further from the truth. There will be something like 50 or 60
countries, we hope, who become members. The United States, though
it is an important area of trade, has less than 15 percent of the world's
export trade, a little less than one-sixth. You will have all the other
countries continuing to buy exchange from the fund, continuing to
use the facilities of the fund the same way as in the beginning. More
than that, the fund will be even more effective, because it will more
quickly bring about a correction of their serious imbalance. And the
agreement which the countries make in joining the fund that they
will not resort to competitive exchange practices, and so forth, continues. The only difference that will take place, if dollars are scarce
in the fund, is that countries will be able to apply limitations, so
far as exchange transactions in dollars are concerned, as they did before the fund existed. That is all that happens.
I would like to call your attention to the fact that there has been
much too easy an assumption that everybody wants dollars and that
dollars will become scarce in the fund very quickly. It is true that
in the earlier years, 2, 3, 4, maybe 5 or 6 years, there will be a greater



164

BRETTON WOODS AGREEMENTS ACT

demand for American goods so that there is almost certain to be a
balance due us.
Senator MURDOCK. Did I understand you to say there will be a
greater demand for goods than we are able to produce ?
Mr. WHITE. Except for the very immediate postwar months, no;
unless there is a continuation of a boom period. Of course, that is
possible.
Senator TAFT. May I say that Mr. Eccles suggested in the last
testimony he gave here that we simply would have to ration exports,
that the demand would be so great for goods at home and abroad
there would be no possibility of meeting that demand for some years.
Mr. WHITE. I think that is very likely to be true for a period of a
year or two, but we have a tremendous capacity in a lot of items,
though possibly not in the over-all picture, but if you take 3, 4, or 5
years from the end of the war, I doubt very much that that will be
true. I hope it is true.
Senator TAFT. Oh, I think 5 years from now that situation will
have changed.
Senator MURDOCK. That prompts me to ask this question. The
very thing we have been ambitious for in this country, as I have understood it, is what might happen to our dollar, that is, there will be
such a demand for American goods that the dollar exchange will not
be sufficient; that is, that they will have to ration the dollar exchange.
Mr. WHITE. That other countries will have to ration it, you mean?
Senator MURDOCK. Yes.
Mr. WHITE. We want our exports to increase, but we want other
countries to be in a position to pay.
Senator MURDOCK. That is the thing we have been ambitious to
have.
Mr. WHITE. And that is one of the things that the fund is created
• to make provision for, and of course that is one of the things that
makes the fund of considerable interest to foreign countries. They
will have an additional supply of dollar exchange with which to buy
more of the goods they want. But that condition which may and
probably will last over several years must be taken together with the
fact of how much dollar exchange is going to be available from all
sources. That is the part which is frequently overlooked. In the
first place, there are a number of countries that have greatly increased
their gold holdings during the war. The neutral countries particularly, and the South American countries, because they have been selling a lot of goods and have not been able to buy as much as they
would like to. Therefore their foreign-exchange assets have piled up.
The CHAIRMAN. And they have gotten gold?
Mr. WHITE. And they have gotten gold. In some cases they have
bought dollars with it and kept it on deposit, but they acquired a
substantial amount of gold. Now, when the shipping stringency
disappears and the manufacturing restrictions in this country, the
WPB restrictions and so on are removed, they will begin spending
that velvet, so to speak, that they have accumulated over the years.
We have made some estimates and conservatively we would expect
that they will reduce their gold reserves and get dollar exchange with
it, to spend here, up to probably $3,000,000,000. Some think it will
be much more, but 3 billions is a conservative estimate. In other



BRETTON WOODS AGREEMENTS ACT

165

words, they would have $3,000,000,000 worth of gold that they can
and will spend. There will be newly mined gold during the next 5
years outside of the United States, and outside of Russia. I exclude
Russia because there is a special provision which gives her special
privileges during that period. That will be over the 5-year period
in the neighborhood of $5,000,000,000—that is the aggregate of all
countries except the United States and Russia. Most of that will
be spent. You see, members have to spend most of those increases
while they go to the fund. That makes about $8,000,000,000. I am
talking now of a total for a 5-year period. Now, we have to add to
that figure our capital exports, because obviously that is a source
of dollar exchange. How large those capital exports will be is a
matter of guess or judgment. In the decade after the last war they
averaged a little over a billion dollars a year. I think that most
people feel that it will be less than that after this war if nothing is
done. With the fund and the bank in operation, which will greatly
help to stimulate foreign investment, the capital exports should grow
to a couple of billion dollars a year or more.
Senator TAFT. I suggest they will be very small; that is, for some
years. Insofar as the Government itself guarantees the money and
confidence may be restored, say in 5 years, I think it may increase,
but immediately I don't think anybody is going to rush abroad to
invest in foreign countries, unless the Government is going to guarantee it.
Mr. WHITE. There is one source of capital export, Senator, that I
think you have overlooked. There will be a lot of building branch
plants and establishing new factories in South America and other
foreign countries. There is a big backlog to be met. Altogether,
capital exports will probably be somewhere in the neighborhood of
a couple of billion if the bank and the fund go into operation. That
is, a couple of billion dollars a year. Over a 5-year period that is
$10,000,000,000. Adding that to the $8,000,000,000 you have gives a
figure of $18,000,000,000 over a 5-year period that can be paid to the
United States.
Senator TAFT. We will have enough gold even to satisfy Senator
Murdock.
Senator MILLIKIN. May I suggest that it is not compulsory on the
part of countries that have earmarked gold to spend it here, if they
can import to better advantage from the sterling bloc.
Mr. WHITE. That is very true; but if they have any increase in gold
it will find its wTay to the fund. What I was indicating was that
the assumption that there is going to be a shortage of dollars in the
fund in a short time ignores these very pertinent factors.
Senator TAFT. That is the over-all average in question.
Mr. WHITE. That is right.
Senator TAFT. It does not apply to a large number of countries—
some countries have more than they need and others haven't got anything ; isn't that true ?
Mr. WHITE. That is true. Countries with a small amount of gold
are usually the small countries. That is one important reason why
we need the fund.
Senator FULBRIGHT. Did you say that all new gold has to come to
the fund?



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BRETTON WOODS AGREEMENTS ACT

Mr. WHITE. When any country purchases foreign exchange from
the fund, let us say dollars, in this case, and simultaneously increases
its gold or other forms of monetary reserves, so that at the end of the
year it has received more than it has paid out, it has to use that
increase to buy back its own currency from the fund. It has to put
gold back in the fund in place of its own currency. That is one provision. The second provision is that when a member country buys
dollars from the fund or any other currency it has to pay half in gold
unless it has less gold than its own quota.
Senator MTJRDOCK. Under section 3, "Subscriptions," it says: .
Each member shall pay in gold, as a minimum, the smaller of 25 percent of its
quota, or 10 percent of its net official holdings of gold and United States dollars
as at the date when the fund notifies members that it will shortly be in a position
to begin exchange transactions.

Are United States dollars interchangeable with gold ?
Mr. WHITE. We happen to be the only country, practically, in which
that is true. Wherever we said gold we also said dollars, because to
many countries they would just as soon hold dollars as gold. If the
agreement would have put just gold alone, some countries might have
converted their gold into dollars. That would have been a big loophole. So gold and dollars are the same in calculating the gold subscription to the fund.
Senator MTJRDOCK. NOW, in makmg up their quota, let us say that
Argentina had a great quantity of United States dollars. Could she
deposit those dollars with the fund in place of gold?
Mr. WHITE. She could not, according to the terms; I think it would
have to be gold. In fact, it wouldn't make any difference to us, because
Senator MTJRDOCK. I know it would not to us.
Mr. WHITE. It wouldn't to anybody, because they can buy and sell
dollars and gold by just a telephone conversation. So they might very
well say to the fund, would you like gold or would you like dollars?
Actually, countries pay their gold subscription in gold rather than
dollars.
Senator MTJRDOCK. That answers my question. Thank you.
Senator MILLIKIN. The reason the countries have an excess of
$3,000,000,000 in gold is because they had dollars which they transferred into gold ?
Mr. WHITE. Mostly, with this one exception, Senator. As a result
of the fear of invasion in those countries, some of the countries deliberately shipped a lot of gold here.
Senator MILLIKIN. That being the case, I wonder if it is entirely
sound to say you can regard the two things as the same. If we are
establishing a habit here of having dollar balances transferred into
earmarked gold, doesn't it indicate a preference for gold as against
dollars ?
Mr. WHITE. It would for those countries and the reasons vary from
country to country. Some countries are required by their laws to have
gold reserves behind their balances and are not permitted to include
dollars. In other cases there is a feeling that gold earmarked has a
different legal status than dollars to their account—that we would
hesitate to do anything with earmarked gold where we would not
hesitate with dollar balances.



BRETTON WOODS AGREEMENTS ACT

167

Senator TAFT. We don't seem to be making much progress. We
wander off so much from the things we start on.
Mr. WHITE. I thought I had finished with what we started on..
I attempted to explain what we mean by dollars being scarce in the
fund and what follows from the declaration of such scarcity, and
then I wanted to indicate that the likelihood of dollars being scarce
in the fund is remote and would take place only if we changed our
policy so that we sold so much to other countries compared with what
we bought, as to put terrific pressure on all the countries unless foreign
investment helped offset it.
Senator FULBRIGHT. Would there be any inclination on the part of
the fund to put pressure on us to increase that amount through our OWTB
activity, not through reduction in their purchases?
Mr. WHITE. One thing we might do—it doesn't look as though we
were going to—it would be most unfortunate if we did—is to pass a
higher tariff act which would mean that other countries could sell us
much less. Another thing we might do is to not reduce certain of the
tariffs which are inexcusably high.
Senator TAFT. What are those, Mr. White? I would like to know,,
Mr. WHITE. Oh, Senator
Senator TAFT. Well, I really want to know. I am interested.
Mr. WHITE. I remember in my capacity as a member of the Trade
Agreements Committee for 1.0 years, where we used to examine tariff
schedules, we all agreed there were certain specific ones that were
much too high.
Senator TAFT. Many of them have been reduced. How many are
too high now ? I want to know which they are.
Mr. WHITE. It is my judgment, Senator, that there are some that
are still too high and that the proper way to attack the problem is to
consider each item separately.
Senator TAFT. I just wondered which you thought were too high
today.
Mr. WHITE. I am afraid that would take me too far afield. I would
like to finish this subject first. One way in which pressure for dollar
exchange could be eased would be by encouraging capital exports. If f
as the Senator believes might be the case, that in the absence of these
two institutions there would be very little capital going into these
countries, they might have a scarcity of currency that would be very
great and would impose upon them a great urgency to do something to
increase the supply of dollars and diminish the demand for dollars in
their countries. That is a condition we would like to avoid, if possible.
Senator TAFT. Section 3 of article VII says they "shall formally
declare such currency scarce" after a report. I suggest that one of my
difficulties with it is that that seems to be an international indictment
of the United States practically made by that and our fiscal policies..
You say it could be done without the fund but it could not be done im
such an official way to which wTe have formally and in advance agreed.
One of my suggestions is this: That this section 3 (a)—I mean this is;
a statement from the wrorld that the United States is refusing to takeimports, they are refusing to lend us money, they are refusing, to export




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BRETTON WOODS AGREEMENTS ACT

capital, and so we indict them. We are going to declare their currency
scarce. We are not going to pay debts we owe them. We have agreed
to all of that in advance. That is what bothers me about section 3.
Mr. WHITE. Let me give you a little of the background. There is
some point to your remark, as will be clear from what I am about to say.
In some of the proposals that were submitted by experts of foreign
countries they wanted to impose a penahvy on the country whose currency became scarce, having in mind, of course, chiefly the United
States. If that should happen they, said the United States might be
the chief offender. If the United States does the same thing as she
did after the last war, make it impossible for us to sell goods to the
United States and insist at the same time upon subsidizing her exports,
it is going to disrupt the monetary systems of the world merely because she is not pursuing the policy we think she should. Therefore
they want to penalize that country pursuing such a policy by imposing
a charge or penalty fee. That was in the discussions before Bretton
Woods.
The American technicians took this position: We would not consider any such penalty and we would not accept such a conclusion.
The causes for countries buying more than they are selling differ from
time to time and from country to country, and the chief fault may not
at all be ours. It might be ours in part, but it might also be the fault
of the other countries. The mere fact that a particular country wants
to sell us fish oil although we don't want to buy it, perhaps we don't
like so much fish oil, is no reason why they should force us to buy more
fish oil. In other words, countries may be living beyond their means.
They may think there is an unlimited amount of foreign goods they
can buy from the United States irrespective of what they can sell.
What they have to sell may not be sufficiently desirable to other
countries.
Countries may get into a position where there is a scarcity of foreign
currency not because of the fault of the country from which they are
buying but due to their own extravagant policies. We said we could
accept no such assumption, either implicit or explicit, that rf dollars become scarce in the fund, that the fault is necessarily ours. We finally
agreed that if any currency becomes scarce a report will be prepared
and a member of the committee which prepares that report shall be
a representative of the country whose currency is becoming scarce.
We want to make certain any report made is a competent one, and
places the responsibility for the scarcity where it belongs and give
proper weight to each of the various causes. We said we would agree
to have the fund make a report. More than that if the fund declares
a currency scarce we would agree that the fund be required to make
public the report. That, we think, is highly desirable, because if there
are causes for that scarcity which are in part due to policies pursued
by the United States, then we think that Congress ought to know it.
The report of the fund would have prestige, if the fund earns prestige.
If the fund conducts itself in such a way that it wins the confidence of
the various countries, Congress or a committee—your committee would
have it—would have before it the report of the fund for you to examine
for what it was worth. If the reason stated in the report seemed
sound it might influence your policy, you would take that fact into
consideration. You are.not required to do anything about it. All



BRETTON WOODS AGREEMENTS ACT

169

that you are called upon to do is to give the report of the fund consideration.
Senator TAFT. And it says :
A formal declaration under (a) above shall operate as an authorization to
any member, after consultation with the fund, temporarily to impose limitatons
on the freedom of exchange operations in the scarce currency.

In other words, we cannot get dollars for pounds. They raise other
results.
Mr. WHITE. NO, no.
Senator TAFT (reading) : "Subject to the"
Mr. WHITE. Excuse me. May I correct that?

The fund says in

effect:
If you subscribe to this fund, you have to agree not to put certain restrictions on
the acquisition of any foreign currency on current transactions. If, however,
any currency becomes scarce, then the members of the fund revert to their
original position with respect to that currency.

Senator TAFT (reading) :
Subject to the provisions of article IV, sections 3 and 4, the member shall have
complete jurisdiction in determining the nature of such limitations
Mr. WHITE. Which is what they have now.
Senator TAFT (reading) :
but they will be no more restrictive than is necessary to limit the demand for
the scarce currency to the supply held by, or accruing to, the membar in question;
and they shall be relaxed and removed as rapidly as conditions permit.
I only suggest that it is a very different thing from a world in
which we pursue our own course. Where we have difficulty with
exchange writh a country, we go to'that country and make an arrangement to make loans if we wish to, or we let their trade go because it happens to be something we don't particularly—we prefer
to pursue our existing policies.
Senator FULBRIGHT. YOU can still make loans.
Senator TAFT. Where you have the world saying, in effect, "America is creating order and law and prosperity in the world," and they
may be right or they may be wrong. In any event, it affects us the
same way.
Mr. WHITE. Well, Senator, what they would say in that event—it
is not a likely event, but if that did occur—what they would say is
that everybody cannot have as many dollars as they want, which is
precisely what has been said for the last 15 years. There is nothing
new in that.
Senator FULBRIGHT. It seems to me wTe wTould want them to restrict
it in order to get replenishment.
Mr. WHITE. Of course.
Senator FULBRIGHT. And we can still make money.
Senator TAFT. I would like to read at this point Lord Keynes'
statement on the subject, because I think it throws light on it :
There is another advantage to which I wish to draw your lordship's special
attention. A proper share of responsibility for maintaining equilibrium in the
balance of international payments is squarely placed on the creditor nations.
This is one of the major improvements in the new plan. The Americans, who
are most likely to be affected by this, have, of their own free will and honest
purpose, offered us a far-reaching formula of protection against a recurrence of
the main cause of deflation during the interwar years, namely, the draining of
reserves out of the rest of the world to pay a country which was obstinately



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BRETTON WOODS AGREEMENTS ACT

borrowing and exporting on a scale immensely greater than it was lending
and importing.

Now, here is a statement that I think gives a wholly false statement
of our position in the interwar period:
Under clause VI of the plan a country engages itself, in effect, to prevent
such a situation from arising again, by promising, should it fail, to release
other countries from any obligation to take its exports, or, if taken, to pay for
them. I cannot imagine that this sanction would ever be allowed to come into
effect. If by no other means than by lending, the creditor country will always
have to find a way to square the account on imperative grounds of its own
self-interest. For it will no longer be entitled to square the account by squeezing
gold out of the rest of us.

I may interpolate here that you seem to be going to take eight or
ten billion of their gold, still, under your own theory.
Here we have a voluntary undertaking, genuinely offered in the spirit both of
a good neighbor and, I should add, of enlightened self-interest, not to allow a
repetition of a chain of events which between the wars did more than any other
single factor to destroy the world's economic balance and to prepare a seed-bed
for foul growth. This is a tremendous extension of international cooperation
to good ends. I pray your lordships to pay heed to its importance.

Now, does that state substantially the results? I do not think it
states the facts fairly, but do you think it states the results of this
conference ?
Mr. WHITE. .1 dislike very much to criticize anything that Lord
Keynes has said, because I have a very high regard for his integrity
and ability and understanding of the subject, and his interest in
helping to, bring about world prosperity and peace. However, I
think I would not have written it that way. The only thing that the
fund can do—and we were quite agreeable to include that, ard I think
it is an excellent thing—is to make a report. The committee of the
fund can make a report, and one of the committee members, as I say,
would in that case be the American representative. They would
make a report concerning the various causes, suggesting certain remedies, and that report would come before your committee, and you
would give it whatever consideration you thought it deserved. If
you thought the arguments that were given were sound and that they
did indicate and called for some modification of Government policy,
I am sure you would be glad to adopt it. If, on the other hand, you
felt that they were in error, if you felt they were distorting the facts,
I am sure you would likewise give the report the consideration which
it deserves. You would in that case throw it in the basket.
Senator TAFT. Well, I just suggest that it puts us in the position
before the world of always allowing—as long as we have a high
standard of living and greater prosperity5 of doing acts of sabotage
to the rest of the world by an official body. I think Lord Keynes is
right when he said you were extremely generous in agreeing to such
a provision.
Senator MILLIKIN. Mr. Chairman.
The CHAIRMAN. Senator Millikin.
Senator MILLIKIN. I suggest. Senator, that to my mind it takes
the form of giving this fund the power to develop an embargo on
the United States.




BRETTON WOODS AGREEMENTS ACT

171

Mr. WHITE. Senator, I do not quite understand that. What will
happen after the war, supposing the fund never goes into effect, is precisely what happened in the last 15 years, and you can even go further
back than that in certain countries. A country cannot satisfy the
requests of all its nationals for dollar exchange. Now, what can
a country do ? It has, let us say, a half billion dollars' worth of gold
or foreign exchange which it feels it can spare without going below
a proper monetary base and critical reserve. Here they have a demand on the part of their nationals for the equivalent, let us say, of
two hundred million a year. Any responsible central bank would
look at those figures and say, "Good Lord, if this keeps up we will
soon be in trouble. We may have to depreciate our currency or subsidize exports," or adopt any one of the other devices that we would
prefer them not to use. Instead of that, a reasonable approach to
the problem is the one that we want to encourage. The fund would
say, "You have to ration that exchange. You haven't got enough
to go around." They don't declare an embargo against our exports.
There was no embargo against our exports from the year 1926 to the
year 1939, and yet some countries rationed their foreign exchange.
There were only a few countries who could have afforded to operate
without rationing their foreign exchange.
Senator TAFT. May I suggest that by the fund rationing what
dollars there may be, they determine where we can export, instead
of our determining it, whereas if we are free to handle it ourselves we
can determine where we wTant to export and where we do not.
Mr. WHITE. NO. We never ration our exchange. It is the other
countries that do it.
Senator TAFT. Doesn't the fund first ration those dollars between
the countries ? That is what I am trying to get at.
Mr. WHITE. Oh, the fund rations what little there is left in the
fund, and that has to be the case, because if dollars in the fund are
not enough to satisfy all the countries that are asking for them, quite
obviously the fund has to ration them. .
Senator TAFT. Mr. White, may I ask you one question that bears
on this? It is a technical thing that I don't exactly understand. Are
you sure that all the dollars will get into the fund? For instance,
my suggestion is that French exporters export, and they naturally
hang onto those dollars individually. They want them "themselves.
They want to go over and buy something, perhaps, in this country,
or use it to buy something somewhere else.
Mr. WHITE. That is a very good question.
Senator TAFT. HOW can we be sure that the fund won't run short
of dollars when there are dollars scattered around the world in the
hands of other people who would have come to this country and
bought goods but who are now forbidden to do so by these sudden
restrictions imposed?
Mr. WHITE. That is an acute observation, Senator, and that is
something that troubled us when drafting' the provisions. This is
the way we provided for it, and we think we provided for it effectively. What, I gather, Senator Taft is saying is that countries may
come to the fund to buy dollars while the dollars those countries
acquire from various sources, private individuals will have.
75673—45



12

172

BRETTON WOODS AGREEMENTS ACT

Senator TAFT. They don't get them. Their individuals get them.
Mr. WHITE. Individuals will.
Senator TAFT. They cannot control those individuals, can they?
Mr. WHITE. We included a provision which takes care of that very
thing. Dr. Bernstein will describe it if he may.
STATEMENT OF E. M. BERNSTEIN, TREASURY DEPARTMENT,
TECHNICAL ADVISER AND EXECUTIVE SECRETARY OF THE
DELEGATION OF THE UNITED STATES TO THE BRETTON WOODS
CONFERENCE
Mr. BERNSTEIN. The general provision states that a country that
uses the fund
Senator MURDOCK. Which provision is that?
Mr. BERNSTEIN. There are two provisions I am going to refer to.
One is in article V.
Senator MURDOCK. What page ?
Mr. BERNSTEIN. Page 10. section 7, and I am going to summarize
for you section 7 (b).
Now, this provision states that when a country uses the fund to
acquire foreign exchange it must see that its own exchange resources
are used in equal amount; and, as Mr. White explained, that means
if they have an increment of exchange, they must use all of it before
they come to the fund. If they have used the increment and still
want to use the fund, then they must draw down their own gold
reserves by an equivalent amount. A country that gains, for example,
a hundred million dollars in gold and uses the fund to the extent of
a hundred million dollars, would have to buy every single unit of
its currency back that it has sold to the fund in that period.
The point that Senator Taft raises is this: We.say a country that
has an increment of exchange must repurchase its currency. His
point is, I gather, that the central bank or the Treasury won't get
this exchange. It will be in the hands of individual Frenchmen or
Brazilians or whatever the country may be. Now, we have taken
care of that in article X I X when we explain what are the exchange
holdings of a country.
Mr. WHITE. Refer to the page of article XIX.
Mr. BERNSTEIN. It will be on page 35. No. Excuse me. It is on
page 34, at the bottom. That is article X I X (c), "The holdings of
other official institutions." The explanation of what is a member's
monetary reserves for the repurchase provisions is explained in this
series of paragraphs. It is made clear, first, that it includes the gold
and dollar reserves of the central bank, the Treasury, the stabilization fund, and other official institutions. That is the first thing.
Mr. WHITE. May I interrupt you there? Not only gold and dollars
but, should any currency have the same interchangeability between
gold and currency, that would be included. It so happens that dollars
are about the only one.
Mr. BERNSTEIN. That is right. I should qualify that. If later it
turns out that other currencies can become*substitutes for holding gold
or dollars, they would be included. Then it states that some dollar
exchange and, as. Mr. White indicates, other convertible currencies
may be held as balances by their banks, in which case the fund can



BRETTON WOODS AGREEMENTS ACT

173

take the attitude that, if the banks are accumulating more than they
need for working balances, the excess shall be ^deemed to be part of
the official holdings.
For example, suppose that we assume that British banks need $300,000,000 of foreign exchange in order to carry on their exchange business conveniently. Suppose they increase the balances to $500,000,000.
Then the fund can deem the excess $200,000,000 to be part of the official holdings and subject to precisely the same repurchase qualifications as p-old, dollars, or other convertible currencies held by the
Bank of England or by the British Treasury.
Then we came to the question, What shall we do with holdings of
businessmen? Here businessmen, corporations, may be holding balances. Now, it is quite proper for them to hold some dollar balances,
if they are doing business in the United States. In order to avoid too
much difficulty in making their purchases and their payments here,
they may be allowed, quite properly by their government, to keep
moderate balances. But suppose they do what Senator Taft suggests,
they now try to build up these dollar balances in order to avoid giving
it to the government. And the question before us was, What shall
, we do about preventing such a means of avoiding the repurchase
provisions ?
Now, we had two ways of doing it, and we decided on the second.
The first was to say very plainly that the fund shall require every
government to take from its nationals the excess holdings and count
it as part of its own reserves; and in some of the early discussions we
did have some such provisions.
The second method, which we thought, on further discussion, to be
the better, is this: Not to have any sort of statement in the agreement
which would seem to imply that this Government thinks that every
government in the world ought to jump on its corporations and businessmen who hold foreign exchange and say, "Turn this over to the
government. We want to count it as part of the official reserves." We
preferred an indirect method which was this: If the banks hold 300
million as normal, they hold 300 million because the businessmen, say,
hold a hundred million which they are going to use themselves. Then
when businessmen need supplements they will buy from the banks.
Now, if businessmen should hold excessive balances of foreign exchange, by definition what the banks need to deal with them becomes
that much less.
Senator TAFT. What is "excessive"? I mean why shouldn't a corporation in France figure that 2 years from now they will need something they are going to have to buy in the United States and keep it?
What is "excessive" about it?
Mr. BERNSTEIN. The fund is the judge of what is excessive, I should
first point out. In all these cases the fund is the judge. It is what in
the fund's opinion is excessive which would count. If, for example,
a corporation holds three times as much as it ever held before the war,
if it is building up exchange reserves which it is not likely to use for
2 or 3 years, while in the meantime it would be getting in an accumulation of exchange reserves, you can see that they are excessive.
Senator BUTLER. HOW will the fund know where these are located ?
Mr. BERNSTEIN. Every country is required to report to the fund on
all of these data.



174

BRETTON WOODS AGREEMENTS ACT

Mr. WHITE. We get such reports now, Senator.
Senator BUTLER. In each individual name ?
Mr. BERNSTEIN. NO. In aggregates. Now, we ourselves know
what is held in this country by foreign governments and central
banks, by foreign banks, by foreign corporations, in deposits. That
has been reported to this Government regularly once a month.
Mr. WHITE. And by foreign individuals.
Mr. BERNSTEIN. And by foreign individuals, too. That has been
reported to us regularly once a month since 1934. The banks collect
this information for their own guidance, and they pass it on to the
Treasury. We do not ask for the name of each corporation separately. We don't need to. When we see the aggregate is rising as
compared to what it should have been, and we know what it should
have been—we know what it has been now, you see, for 10 or 11
years—we would have complete information as to whether or not
people are trying to evade the repurchase provisions in the manner
that Senator Taft suggests.
Senator TAFT. Chiefly, I suggested we would have trouble in putting on all those restraints in our desire to get information and reports
from every foreign country.
STATEMENT OF HARRY D. WHITE, ASSISTANT SECRETARY OF THE
TREASURY, WASHINGTON, D. C—Resumed
Mr. WHITE. That is true, Senator, but we do not depend on their
reports. We are speaking of the countries which are likely to be
the major countries, chiefly the United States, in which foreign balances are being increased for the purpose of getting around this things
and that would be chiefly the United States. We get our reports.
Other countries will need to get their reports, and one of the desirable
things that will result from the fund is that all countries will find
themselves required to have much better financial data, much better
factual information for their own use as well as for use of the fund
than they have ever had. There will be a gradual development in
collecting data, and we hope that it won't be long before these countries
will have something that approaches our own. We probably, possibly
with the exception of Canada and one other country, lead the world
in the adequacy and competency of the data in this field. Ours could
be improved, but those of many other countries could improve much
more.
Senator TAFT. Well, I do not know very much about the technical
difficulties of trying to line up these private dollars, but it occurs
to me it requires the mass regimentation of every foreign-exchange
transaction and every holding of foreign currency throughout the
entire world.
Mr. WHITE. NO, Senator; that is a misunderstanding, and I want
to refer to something on exchange controls and capital movements;
you asked one of the earlier witnesses which probably was not, I fear,
cleared up. Firstly, it is well to remember that what we are dealing
with in these balances and data are aggregates, not individuals. We
are not interested in individual accounts. We watch the total balances ; the balances of one country, the balances of each of the other
countries, or the balances of all countries; not of individual accounts.



BRETTON WOODS AGREEMENTS ACT

175

Secondly, we are not concerned with amounts that are small for the
country in question. For example, supposing you are taking up
matters involving a movement of British capital here, the sum of a
score of million doDars one way or-another would have little significance compared to the amount of transactions with which we are
dealing. What would be significant for England would be fairly
substantial amount of capital movement and a recurring movement.
On the other hand, if you took a country like Honduras or Guatamala, a movement of a few hundred thousand dollars would stand
out like a sore thumb in her total operations and in the fund's operations with them. That would be large for Honduras. So that a great
degree of accuracy in following capital movements is not needed for
purposes of fund decisions. It is easy to ascertain significant' movements when we will have adequate data, as we expect to have as time
goes on.
Now, you commented that you thought that the accounts of individuals and the transactions of individuals would have to be examined in order to determine whether they are undertaking blackmarket operations. Senator, that is not so. We are protected against
that requirement by a provision that I think you would be interested
in, that you may have overlooked.
Mr. Luxf ord, what is the number of that provision ?
Mr. ANSEL F. LUXFORD. Section 3.
Mr. WHITE. Yes. I am going to ask Mr. Luxford to explain that
provision because he helped draft it. Mr. Luxford is in our legal
•department.
Mr. LUXFORD. If you will turn to article IV.
Senator BUTLER. What page ?
Mr. BERNSTEIN. 5.
Mr. LUXFORD. Just a second.
Mr. WHITE, (b).
Mr. LUXFORD. Section 4 (b)

I will give it to you. Page 5, section 4.
provides that—

Each member undertakes, through appropriate measures consistent with this
agreement, to permit within its territories exchange transactions between its
currency and the currencies of other members only within the limits prescribed
under section 3 of this article.

That is for approximately parity.
Then there is the statement following that, which is very important
from the point of view of the United States:
A member whose monetary authorities, for the settlement of international
transactions, in fact freely buy and sell gold within the limits prescribed by
the fund under section 2 of this article shall be deemed to be fulfilling this
lundertaking.

Now, this is what that means in general. If the fund was going
ito mean anything you had to have countries adhere approximately
to parity in their foreign-exchange rates. In other words, you couldn't
have the black market that Senator Taft has mentioned, operating,
or you would say this is all nonsense and you have a fictitious rate
of exchange, and we had to put on countries the burden, the responsibility for maintaining that rate. On the other hand, we did not
want a situation where the United States could be blamed for the
fact that, say, the Mexican peso rate with the dollar was off, and




176

BRETTON WOODS AGREEMENTS ACT

people would say, "Well, what's wrong?" We wanted to be able
to say that so long as we were willing to buy and sell gold freely—
our (iovernment authorities—that was the extent of our responsibility
and we did not have to impose exchange controls. We did not have
to do anything beyond maintaining this buying and selling of gold in
order to enforce our obligation. Now, that means that if the peso
rate went far from the agreed parity Mexico had the responsibility
to see that it went back up to parity. Do you see what I mean?
Senator TAFT. Yes; I see. That is all right here, but no other
country would be able to do this; and when you come around to
question whether there are a lot of dollars around the world in China,
and other places, and the Chinese Government is not controlling, isn't
it quite possible still that they will be unable to control the black
market in currency? They never have in the history of the world
for thousands of years. And isn't it possible that the dollars may
be short in the fund—and that is the question I originally raised—
when they really are fairly plentiful around in these other countries,
in the possession of private citizens ?
Mr. WHITE. There are two separate parts to that question, sir.
Senator TAFT. And the only way they could do it would be by the
strictest kind of black-market control in these other countries, which
probably they wouldn't enforce.
Mr. WHITE. Senator, I think there are two different points you are
raising. Mr. Luxford's remarks were directed toward simply the
question whether we in the United States would have to exercise control over individual transactions, and the answer is: No; so long as
we stand ready to buy and sell gold at a fixed price. Now, any country that does the same is equally free.
Senator MURDOCK. When you buy freely at a fixed price
Mr. WHITE. Yes; at that figure.
Senator MURDOCK. HOW can you buy and sell gold freely
Mr. WHITE. Well, what I mean is
Senator MURDOCK. At a fixed price ?
Mr. WHITE. Well, in this way. This is what we do. If any bank
has an international obligation abroad, it can come to the Treasury
as it always has, and buy gold at a fixed price to settle its balances.
That means that the exchange rate on countries that buy and sell gold
at a fixed price cannot vary much.
Senator MURDOCK. Yes; but you say here in section % "Gold purchases based on par values."
Mr. WHITE. Yes.
Senator MURDOCK

(reading) :
The fund shall prescribe 'a margin above and below par value for transactions
in gold by members.
Mr. WHITE. That's right.
Senator MURDOCK. NOW, does that mean that the fund could say that
we could purchase gold at
Mr. WHITE. $35.
Senator MURDOCK.
Mr. WHITE. There

Well, could we purchase it a little above that?
is a small margin to cover the cost of handling
gold, and of course the price for gold is $35 an ounce.
Senator MURDOCK. Yes.



BRETTON WOODS AGREEMENTS ACT

177

Mr. WHITE, Plus the handling charge. And we will sell gold to
any legitimate dealer at that price, and we will buy gold from anyone
who offers it.
Senator MUEDOCK. Does this margin simply refer to the handling
charge ?
Mr. WHITE. Plus transportation. It is a small margin, plus or
minus 1 percent. And that question of the control of the black market
for the other countries—that is their responsibility. As for the
problem that we originally started to discuss here was whether or not
it is possible for individuals abroad to build up balances in the United
States. It is easy enough to show that some individuals might be
able to do this, and any economist who is familiar with the subject,
if he wished to mislead and distort, could say, "Well, you can't tell.
Here is a private individual that could, through a third party, disguise the holdings and not register them, and so on," Surely. But
that is dealing with peanuts. I mean what we are after in this monetary policy is large sums, sums that are large with reference to the
country; and it is impossible for a country like England, for example,
to hide the fact, and she wouldn't wish to—the British authorities
wouldn't wish to—that balances had advanced by $50,000,000 or
$100,000,000 here. The bank in this country or a business firm would
have to be in collusion, and there would have to be a lot of covering
up that we would find out. There would be no reason for it. It
would be equally difficult for people who lived in Guatemala or Honduras or any one of those small countries to obscure or hide the fact that
their balances had increased in the United States by a million dollars.
You see, the kind of banking data which are submitted to us make
it easily possible for the monetary authorities in this country to know
what is happening, not with respect to particular transactions, not
with respect to small amounts, but with respect to amounts that are
relevant to the kind of problems which the fund handles.
Senator MILLIKIN. Mr. Chairman, may I" ask a question at this
point ?
Tlie fCHAIRMAN. Yes.
Seup f)i- MILLIKIN. Dr. White, as the fund gets to operating and as
the h i ! : gets to operating, the dollars available to foreign countries
together with the capital and money which they can assemble out of
their own generative processes will put them in position to make a
rather rapid restoration of their own exporting industry, supply their
own domestic needs, and to export within their normal or within their
new trading areas, whatever they may be.
Kussia, for example, with the aid that the fund and the bank will
give her, together with her own strength, the aid she would have
elsewhere, would be in a position to export to her satellite countries.
A restored Belgium, a restored France, and possibly a restored Germany will have their industries gradually supply their own domestic
needs and will be exporting within their trade areas.
Does not the effect of that process tend either to defer or to alleviate
the short-dollar position ? In other words, as these exports are multiplied by the countries which now must import from us, as we put them
in position to make their own exports, that will decrease the amount




178

BRETTON WOODS AGREEMENTS ACT

of exports from this country, will bring our exports in closer relation
with our imports, and thus ameliorate a dollar shortage?
Mr. WHITE. That, to me, Senator, is a very fair and, I would be
inclined to say, very accurate statement of what will happen.
Senator MILLIKIN. But it also defeats this dream that we are going
to continue to be an enormous exporting country ?
Mr. WHITE. That, I find myself a little less inclined to agree to.
I don't know what dream you have reference to, but it does mean that
the level of exports, the level of world trade, if you will
Senator MILLIKIN. Yes.
Mr. WHITE. Would be higher, you see. But the first point you
made, which I think is more important for this discussion, is that it
would mean there would be a closer approach to balance, and the
balance would be reached at a higher level.
Senator MILLIKIN. It in part is a timing problem. If these industries can restore themselves, reformed and improved out of their own
strength and out of what we and other countries are able to do for
them, this dollar-shortage business might not come up in crucial
form, or it might be long deferred.
Mr. WHITE. I think that is fair.
Senator MILLIKIN. And that very process decreases our exports.
Mr. WHITE. NO. It decreases the export excess. And that is a
very different proposition.
Senator MILLIKIN. All right; call it the export excess.
Mr. WHITE. That is right. In other words, our level of trade is
liigher, though the imbalance is less.
Senator FULBRIGHT. The Senator does not think we all dream we
are going to be the only exporting nation in the world? That is not
a dream of any rational people, is it ?
Senator MILLIKIN. Well, I am glad to hear that.
The CHAIRMAN. Well, we have got a lot of things to do.
Mr. WHITE. Have we finished our consideration of the problem ?
Senator FULFRIGHT. I do not think so.
Mr. WHITE. Time is up, Senator.
The CHAIRMAN. I do not think we are quite finished with you yet,
Doctor. Will you be here tomorrow at 10: 30?
Mr. WHITE. Senator, I am at your disposal. If you feel I can be
of any help, I will be glad to be here.
The CHAIRMAN. After that will come Governor Eccles, and we hope
to have a session tomorrow afternoon too, gentlemen.
(Whereupon, at 11:50 a. m., an adjournment was taken until tomorrow, Tuesday, June 19, 1945, at 10: 30 a. m.)




BBETTON WOODS AGKEEMENTS ACT
TUESDAY, JUNE 19, 1945
UNITED STATES SENATE,
COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C.
The committee met at 10:30 a. m., pursuant to adjournment on;
Monday, June 18, 1945, in room 301, Senate Office Building, Senator
Robert F. Wagner (chairman) presiding.
Present: Senators Wagner (chairman), Barkley, Radcliffe, Downey,
Murdock, McFarland, Taylor, Fulbright, Mitchell, Tobey, Taft,.
Butler, Capper, Buck, and Millikin.
The CHAIRMAN. The committee will come to order. We are 10 minutes late now. We cannot wait very much longer.
STATEMENT OF HARRY D. WHITE, ASSISTANT SECRETARY OF THE
TREASURY, WASHINGTON, D. C—Resumed
The CHAIRMAN. Mr. White, when we finished yesterday you were
about to discuss some matters, and we cut you short because we had
to go to the Senate. Will you proceed from there on, if you will?
Mr. WHITE. I shall be glad to, Senator. I had wanted, before I
continue, to attempt to answer a question which Senator Murdock put
very early and which I said I would like to postpone to get through
with something else.
T!:e CHAIRMAN. Very well.
Mr. W ITE. With your permission, I would like to return to that
questioi and answer that before I go on to any other material.
The CHAIRMAN. Fine.
Mr. WHITE. And I shouldn't like to have any other question take
me off of that point, because Senator Murdock has been very patient
in waiting for an answer to his question.
The CHAIRMAN. Very well.
Mr. WHITE. If I remember correctly, Senator Murdock, you inquired as to whether or not the recent alteration in the reserve requirements of our note issue and deposits would have the consequence of
depreciating our currency. Was that your question, Senator ?
Senator MURDOCK. Yes. I wondered if a movement such as we
have taken here in a reduction of our reserves could, under the Bretton
Woods agreement, be construed as a depreciation of our currency.
Mr. WHITE. The answer to that, Senator Murdock, is definitely
"No" under the fund agreement. In fact it is doubtful whether even
in the absence of the fund the consequence of that reduction would
have any significant effect on the internal value of the currency or
on the external value. The reason for that is, this is one of the times,.




179

180

BRETTON WOODS AGREEMENTS ACT

I think, peculiar in history, when any country has reduced its reserve
requirements which had been established by law because of the expansion in note issue and deposits, and not because of a loss of gold.
Most countries, when forced to reduce their requirements, are forced
to do so because there has been a flight of gold, a drain of gold, either
an external drain or a domestic drain, and gold reserves go down in
absolute amounts. To meet that situation they may be required to
lower their gold reserves unless they want to abandon the legal reserve
requirement or do other things. In our situation it has not been
any reduction in the gold reserves to any significant extent that was
responsible for the declining reserve ratio, but rather it has been the
expansion in note issue and deposits due to war conditions. So that
the consequences that would follow normally, do not follow now.
When a country's gold holdings are being reduced due to an outward
drain, there develops a loss of confidence in the currency.
Senator TOBEY. May I ask a question there, Senator Murdock, on
that point?
Senator MURDOCK. Surely. I wish you would raise your voice,
though.
*
Senator TOBEY. Of course it is very involved, I realize that, but I
wish to point out that as to this 25 percent, when a nation puts out
its currency, its promises to pay, whether it is in the form of currency
or debentures, behind that promise to pay are all the assets of the
country, are there not ?
Mr. WHITE, Oh, yes.
Senator TOBEY. In the last analysis that is all behind it.
Mr. WHITE. That is behind the word of the Government.
Senator TOBEY. SO that as to this 25 percent, as far as this

country's
solidarity goes, and the spirit to pay, we still have all the gold we had,
whether as reserve against those notes or not; is that correct ? Do you
agree to that, Senator Murdock ?
Senator MURDOCK. Well, I agree with you fully that any issuance
of currency, like our Federal Reserve notes, is, you might say, or
constitutes, a blanket mortgage on all of our resources and on all
of our taxpaying powers.
Senator TOBEY. On all the wealth of the country, exactly, in the
last analysis.
Senator MURDOCK. Yes.
Senator TOBEY. SO that, finally, while our reserves are 25 percent,
yet behind those and every other thing we put out is all the gold we
own, as well as other property; isn't that right?
Senator MURDOCK. That is right.
Mr. WHITE. Senator Tobey, I think
Senator MURDOCK. Of course, if you come to the hard money position that a lot of people take, who want to discard absolutely everything but the metal behind the money, why, they probably would
not agree wTith you and me on it. I am in full agreement with you
that we not only have our gold behind our money, but we have every
resource and every asset.
Senator TOBEY. Exactly.
Senator MURDOCK. Every resource and every asset of the country
behind it.




BRETTON WOODS AGREEMENTS ACT

181

Senator TOBEY, That is exactly right, but many people overlook
that fact or speak about the particular percentage of gold against
the currency.
Mr. WHITE. That is quite true.
Senator TOBEY. I am not arguing against that; I am simply trying
to bring out the fact.
Mr. WHTTE. That is quite true. But there is this important point
that I think Senator Murdock has in mind. Usually when there is a
reduction in the gold reserve ratio it is because of the loss of gold.
A substantial loss of gold, by destroying or, rather, reducing the
confidence of the people within the country and abroad in the future
value of that currency leads to a further drain and subsequently may
well lead to depreciation of currency. But in our particular case
the situation is different by virtue of the fact that it has not been
the loss of gold so much
Senator MURDOCK. Well, it has not been a big loss.
Mr. WHITE. But the expansion.
What is that, sir?
Senator MURDOCK. We have had some loss of gold.
Mr. WHITE, We have sold about 2,000,000,000 in the last couple of
years.
Senator MURDOCK. I do not think that is the big reason.
Mr. WHITE. That is right.
Senator MURDOCK. I think it is extension of Federal Reserve notes
Mr. WHITE. Correct.
Senator MURDOCK. Plus extension of demand deposit.
Mr. WHITE. True.
Senator MURDOCK. That has made this necessary.
Mr. WHITE, True.
Senator MURDOCK. The thing that promoted the question on my
part was this: That when confronted with that situation we had two
remedies. One remedy was a reduction in reserves. The other was
the increase, increasing the value of gold, and we adopted the former
instead of the latter. Now, of course, if we could remove that situation
by increasing the value, then the question arises: If you take the
other manner, of decreasing the gold reserves, shouldn't that have the
same effect, both internal and external, of having depreciated your
currency ? Your answer, as I understand it, is "No."
Mr. WHITE. It is "No." You might be interested in this aspect, too,
Senator: That the funds which we will be called upon to put in the
International Monetary Fund as our subscription fee would come
largely out of our own Stabilization Fund. That fund is, as you know,
separate from the specie reserve which is behind the note issue, and so,
to the extent that we can use that amount, which would be 1.8 billions
it will not further reduce the reserve ratio. That is an important
fact to remember, because there are some who are worried about the
declining gold ratio, and about the prospect that we are going to further
reduce it by our subscription, but most of it will come out of the Stabilization Fund which is already set aside and is not included in the
monetary base.
Does that answer your question?
Senator MURDOCK. Yes; that answers that quite satisfactorily.
Mr. WHITE. Fine.



182

BRETTON WOODS AGREEMENTS ACT

Senator BUCK. Mr. White, may I ask a question ?
Mr. WHITE. Senator Buck.
Senator BUCK. In your answer to the Senator, is there really any
difference—in your explanation is there any difference if you hold
your currency a stable amount and change your gold value or your
quantity of gold, or if you keep your gold reserve and increase your
currency ? I mean, don't you see a difference there ?
Mr. WHITE. There is a difference, Senator, of a kind, and the difference rests on two grounds. Where you are losing gold—in other
words, where your reserve ratio diminishes because you are losing
gold
Senator BUCK. Yes.
Mr. WHITE (continuing). Then people, as I said, begin to worry as
to whether or not the country will have enough gold to meet later commitments, external commitments, that it may have; and also people
begin to be concerned about the strength of the currency.
Senator BUCK. Yes; but in the value of the dollar itself there is no
difference ?
Mr. WHITE. There wouldn't be unless that feeling of lack of confidence became so great that you had a flight of currency, in which
case you might find it necessary to choose among several alternativesr
and one of the alternatives that you might be forced to adopt is the
reduction—is the depreciation of currency. That is one of the things
that happened in 1936 and 1937 in France, where the gold reserves
began to diminish because people in France were concerned about the
future value of the franc, or wanted to make speculative profits, and
they began to send their money out of the country. They went into
dollars and sterling and Swiss francs. That meant an outflow of
additional gold. The more reserves that went out, the more worried
people became and the more pressure on exchange became. One of
the consequences was a fall of the franc.
It is much, Senator, like a run on a bank. If they begin withdrawing their funds from a bank, well, then depositors get worried,
and they withdraw their deposits, and the first thing you know the
bank is in difficulty; whereas when the reserve ratio declines, as in our
case, because the monetary supply is increased, it does not have the
same effect, particularly in wartime where it is expected that the
monetary supply will expand, and it is not a symptom of bad monetary
policy.
Senator BUCK. That was in France?
Mr. WHITE. That is right. Our expansion of money is necessitated
by war. Everybody understands that and expects that, and it is true
in every country.
Would you want to begin with questions now, or shall I continue?
The CHAIRMAN. All right.
Senator TAFT. Mr. Chairman, I would like to ask one question here..
The CHAIRMAN. Certainly.
Senator TAFT. Mr. White, going back to the question we discussed
before, of course one of the purposes of the fund is to get rid of all
of these various exchange restrictions, and so forth. Well, it seems to
me that article XIV to a large extent nullifies that, and that it is so
indefinite and so uncertain that we have no assurance that we are
going to get rid of any of these restrictions short of 5 years or perhaps
some time after 5 years. Do you wish to comment on that?



BRETTON WOODS AGREEMENTS ACT

183

I suggest that we are actually financing, if you please, the maintenance of these restrictions against us, that they will be maintained for
the next 4 or 5 years. What is the use of going into this fund now with
the understanding that the restrictions are going to be indefinitely
continued ?
Mr. WHITE. Senator, there have been some comments on that score.
There is little I might add. If we were given the choice, or if we had to
make a decision—let us put it that way—alone, that all restrictions
should be eliminated, we would say "No," in our own interests as well as
the interests of the other countries, that should not be done, because
that would mean that the other countries would be in trouble right
from the start. The situation which confronts other countries, as I
think you yourself, Senator Taft, pointed out earlier, is that they have
very sizable obligations in other currencies, they have a demand for
foreign goods substantially in excess of their ability to obtain necessary foreign exchange through their exports with which to pay for
those goods. Take the peoples in European countries. They have
been without goods for 6, 7, or 8 years; without many of the consumer
and manufactured goods that they need. If you were to take the lid
off purchases from abroad you would find that importers in those
countries would give enormous orders to the few countries that are in
position to deliver them, both because they have been without those
goods and because many of them are in no position to produce such
goods now because their factories have not yet been converted from
wartime to peacetime, and in many cases the factories have been
destroyed.
Sanator TAFI\ Mr. White
Mr. WHITE. I would like to finish this question because I think it
bears on your point. This is an important point, Senator, that you
raised before, and I think it should be clarified.
Now, if there were no restrictions imposed by those countries on the
ability of their importers to purchase, those countries would have to
pay gold out of their reserves to get the foreign exchange necessary
to pay for the goods which their nationals have bought. Now, the
amount of gold which they would have to pay out in a short time is
so large compared to what they have that it wouldn't take very long
before their reserves would be depleted far beyond the danger point,
and they would be forced to take one of several steps—
First, they could depreciate their currency in an effort to check that.
You see, when they depreciate their currency they make foreign goods
more expensive, and they make their goods less expensive. That is
one thing they would do.
They might also impose low import quotas and finally restrictions
on exchange. They have no alternative. And any minister of finance
or any parliament or congress, faced with that contingency long before
it developed would foresee it and would say, "We cannot remove the
restrictions we have on purchases of foreign exchange because to do,
so would lead only to monetary chaos."
Senator TAFT. Mr. White, aren't you saying it is impossible to carry
out the purposes of the fund today? Isn't that the substance of your
answer ?
Mr. WHITE. I don't think so. May I develop my point and see
•whether you agree?



184

BRETTON WOODS AGREEMENTS ACT

Senator TAFT. Isn't that it? Isn't it that you are saying it is impossible to abolish the exchange restrictions? That is the main purpose of the thing, and it is impossible to do it ?
Mr. WHITE. NO.
Senator TAFT. Isn't
Mr. WHITE. I don't

that your statement ?
quite think so. I think there is something in
that which bears a resemblance to what I am saying, but I think the
difference is more important that the similarity. What I was pointing
out is that it is impossible for many countries Tto operate without restrictions. It is impossible for them, and it w ould be bad for us, because the consequences of their attempt to do so would result only in
the very things that we are trying to avoid. And so we say to those
countries that during this unusual period, during this postwar period
when you have this enormous, piled-up backlog of demand, when your
factories are not yet reestablished on a peacetime basis, when your
trade is not yet reestablished, when your gold reserves are very low,
when confidence in your currency and in your political institutions
is at low ebb—we say, "During that period we want you to continue
those restrictions which are necessary, and as soon as the necessity for
those restrictions disappear you are commited to remove them gradually and as rapidly as possible." And we have a period of 3 years
after which the situation is reexamined, and at the end of 5 years they
need permission of the fund in order to continue the restrictions.
So that one of the purposes of the fund, as you well state—one of
the important purposes of the fund, Senator, is to move toward the
elimination of restrictions. We do not want restrictions imposed
where they are not necessary and are maintained or imposed for the
purpose of the national advantage of a country when it is not warranted by the general situation.
Senator TAFT. But we put up our $2,750,000,000 now.
Mr. WHITE. Yes.
Senator TAFT. And

whether we cut these restraints, the purpose of
it, 5 years from now, is in the lap of the gods.
Mr. WHITE. I think that each country puts up its amount, and the
amount each country puts up is important to it, and we move in the
direction of eliminating those restrictions. Senator, I think it must
be borne in mind that the role of this fund is not solely to function for
the immediate postwar period. This is a permanent institution, and
you have to make progress gradually. We are attempting to do something along these lines for the first time in history. We are attempting
to get countries to cooperate together toward the elimination of the
type of restrictions which result in general lowering of the level of
world trade. Now, that achievement must be a gradual process. If
you attempted to do it suddenly, drastically, you would get nowhere.
It would simply end in a break-down. You have to do it gradually..
You have to recognize the difficulties which other countries are faced
with. Now, that is what we have done.
Senator TAFT. I understand. Now let me
Mr. WHITE. That is why we allowed time in which to move in that
direction.




BRETTON WOODS AGREEMENTS ACT

185

Senator TAFT. Let me read this. This article XIV, section 2, page
29:
In the postwar transitional period members may, notwithstanding the provisions of any other articles of this agreement, maintain and adapt to changing
circumstances (and, in case of members whose territories have been occupied
by the enemy, introduce where necessary) restrictions on payments and transfers
for current international transactions.

Now, I take it that that means these restrictions may not only be
maintained where they have previously existed, but they may be
adapted to changing circumstances, whatever that means.
Mr. WHITE. That is correct; yes.
Senator TAFT. And also, as far as any country in Europe is concerned, brand-new ones may be imposed to an unlimited extent or-—
no; I take that back. May be imposed—
and, in the case of members whose territories have been occupied by the
enemy * * *—

That means France, Belgium, Holland, every other country they
are in.
Mr. WHITE. Most all Europe.
Senator TAFT. Would you say that Sweden would not introduce new
restrictions?
Mr. WHITE. NO ; I should not think so. But Sweden doesn't happen
to be a member. Maybe she will be some day. But if she were, it
would not be a country that would be regarded as occupied by the
enemy.
Senator TAFT. Have you read the monetary agreement between
Great Britain and Sweden, dated March 6,1945 ?
Mr. WHITE. I have. I don't know whether I would be familiar with
all the details, but I am familiar with the general terms.
Senator TAFT. Well, this is an agreement. Mr. Chairman, I think
it ought to be inserted in the record, if I may insert it at this point.
I do not want to read it all. It isn't very long. It is only three pages.
(The monetary agreement between Great Britain and Sweden is as
follows:)
Sweden No. 1 (1945)

MONETARY AGREEMENT BETWEEN THE GOVERNMENT OF THE
UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND
AND THE GOVERNMENT OF SWEDEN
London, 6th March, 1945
Presented by the Secretary of State for Foreign Affairs to Parliament by Command of His Majesty
The Government of the United Kingdom of Great Britain and Northern Ireland of the one part, and the Government of Sweden of the other part, have
agreed as follows:—
ARTICLE 1.

(i) The rate of exchange between the Swedish krona and the £ sterling shall
be Swedish kronor 16.90 = £1.
(ii) This rate (hereinafter referred to as "the official rate") shall not be




186

BRETTON WOODS AGREEMENTS ACT

varied by either of the Contracting Governments except after giving to the
other as much notice as may be practicable.
(iii)In all territories where they have jurisdiction the Contracting Governments shall enforce the use of the official rate as the basis of all transactions
involving a relationship between the two currencies.
(iv) The Bank of England and Sveriges Riksbank, as agents of their respective
Governments, shall fix by mutual agreement the maximum spread above or below
the official rate which will be authorised on the markets which they control.
AETICLB 2.

(i) The Bank of England (acting as agents of the Government of the United
Kingdom) shall sell to Sveriges Riksbank (acting as agents of the Swedish
Government), against Swedish kronor to be credited at the official rate to the
Bank of England's No. 1 Account with Sveriges Riksbank, such sterling as may
t e required for payments which residents of Sweden, under the exchange regulations in force in Sweden, are permitted to make to residents of the sterling
area.
(ii) Sveriges Riksbank (acting as agents of the Swedish Government) shall
sell to the Bank of England (acting as agents of the Government of the United
Kingdom), against sterling to be credited at the official rate to Sveriges Riksbank's No. 1 Account with the Bank of England, such Swedish kroner as may
t)e required for payments which residents of the sterling area, under the exchange regulations in force in that area, are permitted to make to residents of
"Sweden.
ARTICLE 3.

(i) The Bank of England shall have the right at any time to sell to Sveriges
Riksbank against all or part of the sterling balances held by that Bank either
Swedish kroner at the official rate or gold to be set aside at the Bank of England
in London.
(ii) Sveriges Riksbank shall have the right at any time to sell to the Bank
of England against all or part of the Swedish kronor balances held by that
Bank either sterling at the official rate or gold to be set aside at Sveriges Riksbank in Stockholm.
(iii) Gold set aside in Stockholm in accordance with the provisions of this
Article shall be at the Bank of England's free disposal and may be exported.
(iv) Gold set aside in London in accordance with the provisions of this Article
shall be at Sveriges Riksbank's free disposal and may be exported.
ARTICLE 4.

(i) The Government of the United Kingdom shall not restrict the availability
of sterling at the disposal of residents of Sweden for making—
(a) transfers to other residents of Sweden;
(h) payments to residents of the sterling area; or
(c) transfers to residents of countries outside Sweden and the sterling
area to the extent to which these may be authorised by the United Kingdom
Government under the arrangements contemplated in Article 8 (iii) hereof.
(ii) The Swedish Government shall not restrict the availability of Swedish
kronor at the disposal of residents of the sterling area for making—
(a) transfers to other residents of the sterling area;
(b) payments to residents of Sweden; or
(c) transfers to residents of countries outside the sterling area and Sweden to the extent to which these may be authorised by the Swedish Government under the arrangements contemplated in Article 8 (iii) hereof.
ARTICLE 5.

To the extent to which Sveriges Riksbank requires sterling area currencies,
other than sterling, for the purpose of providing for payments in the countries
where smch currencies are legal tender, Sveriges Riksbank shall purchase them
through the Bank © England against payment in sterling.
f




BRETTON WOODS AGREEMENTS ACT

187

ARTICLE 6.

The Contracting Governments shall co-operate with a view to assisting each
other in keeping capital transactions within the scope of their respective policies,
and in particular with a view to preventing transfers which do not serve direct
and useful economic or commercial purposes.
ARTICLE 7.

Any sterling held by Sveriges Riksbank shall be held and invested only as
may be agreed by the Bank of England, and any Swedish kronor held by the
Bank of England shall be held and invested only as may be agreed by Sveriges
Riksbank.
ARTICLE 8.

(i) If, during the currency of this Agreement, either of the Contracting Governments adheres to a general international monetary agreement, the terms of
the present Agreement shall be reviewed with a view to making any amendments
that may be required.
(ii) While the present Agreement continues in force the Contracting Governments shall co-operate to apply it with the necessary flexibility according to circumstances. The Bank of England and Sveriges Riksbank, as agents of their
respective Governments, will maintain contact on all technical questions arising
out of the Agreement and will collaborate closely on exchange control matters
affecting the sterling area and Sweden.
(iii) As opportunity offers the Contracting Governments shall seek with the
consent of the other interested parties—
(a) to make Swedish kronor at the disposal of residents of the sterling
area and sterling at the disposal of residents of Sweden available for making
payments of a current nature to residents of countries outside the sterling
area and Sweden; and
(&) to enable residents of countries outside the sterling area and Sweden
to use sterling at their disposal to make payments of a current nature to
residents of Sweden and to use Swedish kronor at their disposal to make
payments of a current nature to residents of the sterling area,
(iv) Notwithstanding that each of the Contracting Governments shall be alone
responsible for its monetary relations with third parties, they shall maintain
contact wherever the monetary relations of the one affect the interests of the
other.
ARTICE 9.

For the purposes of the present agreement—
(i) The expression "the sterling area" shall have the meaning from time to
time assigned to it by the exchange control regulations in force in the United
Kingdom.
(ii) Transactions between the Bank of England and Sveriges Riksbank are to
be considered as transactions between the sterling area and Sweden.
(iii) Transactions entered into by the Government of any territory within
the sterling area or by the Swedish Government are to be considered as transactions entered into by a resident of the sterling area or Sweden, respectively.
ARTICLE 10.

The present Agreement, which shall be subject to review and adjustment after
mutual consultation, shall be deemed to have come into force on the 1st day of
January, 1945. At any time thereafter either Contracting Government may
give written notice to the other of its intention to terminate the Agreement and
the Agreement shall cease to have effect three months after the date of such
notice. It shall terminate five years after the date of its coming into force unless
the two Contracting Governments agree otherwise.
In witness whereof, the undersigned, duly authorized by their respective Governments, have signed the present Agreement and have affixed thereto their seals.
Done in London, in duplicate, the 6th day of March, 1945.
(L.S.)
(L.S.)

75673—45



13

ANTHONY EDEN.
ERIK BOHEMAN.

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BRETTON WOODS AGREEMENTS ACT

Senator TAFT. This is an agreement by which they have entered
into an agreement with Sweden, stabilizing the Swedish currency and
the British currency, and the Swedish Government undertakes not
to restrict the availability of Swedish kronor. I read from article
4 (ii) :
shall not restrict the availability of Swedish kronor at the disposal of residents
of the sterling area for making—
(a) transfers to other residents of the sterling area ;
(6) payments to residents of Sweden; or
(c) transfers to residents of countries outside the sterling area and Sweden
to the extent to which these may be authorized by the Swedish Government
under the arrangements contemplated in article 8 (iii) hereof.

As I read it over, it seems to me to be imposing a kind of bringing
of Sweden into the sterling bloc and imposing of restrictions on the
availability of what the Swedes may do regarding the making of dollars available or getting dollars with sterling.
Mr. WHITE. Senator, that type of agreement is one of a large number of arrangements which are being made—we ourselves are making
some of a somewhat different character—and which are made not only
with our full knowledge but with our approval. They are monetary
arrangements between two countries which seek to reduce the danger
of a scarcity of foreign exchange.
England will say to Sweden—she may have another arrangement
with France, and so on—it will say to those countries:
If we are selling you goods, we will accept your kronor, and we won't submit
those kronor for conversion into gold until we reach a certain level at which
time we want to rediscuss and see where we go from there.
Similarly, you are to pay sterling in return for Swedish exports to England.
We will let sterling balances which may result pile up in the central bank until
they reach a level at which we want to reexamine the situation.
Senator MURDOCH. Mr. White.
Mr. WHITE. Senator Murdock.
Senator MURDOCK. May I ask this question: Could that be con-

strued as an effort on the part of England to keep away from gold ?
Mr. WHITE. NO, no. England is in the position where she must
import goods and is quite uncertain about her ability to export, and
quite reluctant, as one can well understand in view of the frozen
balances and other commitments, to have her gold reserves diminished;
and so she is seeking to make arrangements with other countries so
that they will accept each other's currency without presenting them
for redemption in gold or attempting to sell them on a third market,
which might have the effect of draining gold from her reserves. Up
to a certain level it is almost like—if I might merely hit the high spots
and leave out many of the qualifying technical details—it is much as
though Sweden would say to England, "We will sell you goods on
credit. That is, you will pay for the goods, but you will pay us in
sterling, and we will accept sterling up to a certain amount. Your
British importers will keep the sterling on deposit," wThich is a way—
Senator TAFT. Doesn't it amount to this? Now, doesn't it come
down to this? Isn't England saying to Sweden, "If we buy anything from you, you have got to buy something from us"? Isn't that
about it? In other words, isn't it one of these bilateral trade agreements which are supposed to be eliminated by this whole plan ?



BRETTON WOODS AGREEMENTS ACT
Mr. WHITE. NO.
Senator TAFT. Isn't that what
Mr. WHITE. NO, Senator. It

189

it comes down to ?
does have some aspects of that, but
again the differences are more significant than the similarities. You
are not dealing with countries in which the Government does the
trading. England doesn't say to Sweden, "You buy this from us, and
we will buy this from you." The people who do the buying and the
people who do the selling are private individuals, private corporations.
What England is. say ing to Sweden is that, "If our people buy from
you, they will pay for it in the way people always pay; they will pay
for it with their sterling, but your central bank will accept sterling
and hold it up to a certain amount."
Now, then, the Swedish individual—the Swedish corporation—buys his goods wherever he wishes. He buys it in the cheapest market. Sweden is a country that can afford to operate, I think, after
the war, and probably will, with no restrictions. It has adequate gold
reserves. It has not been subjected to the same disruption as other
countries, and I think you will find that the Swedish individual will
be able to buy in whatever market he wishes. If an American exporter can offer machinery, or whatever it is that Swedes wish to
buy, cheaper than the British exporter, the Swedish individual will
buy in the United States, and his Government will pay gold; but
should a Swedish importer prefer to buy in England, then England
will accept a krona balance, or reduce Sweden's sterling balance.
Senator MURDOCK. Well, but doesn't the arrangement, then, hold
intact the gold reserves of both countries and make them dependent
on their own currencies—rather, on the currency of both countries
and all countries' gold? It seems to me that if you carry the thing—
take off the thing—that they will hold it up to a certain point. Remove that entirely and you move off gold entirely, don't you ?
Mr. WHITE. Well, that is true, Senator Murdock, except that—and
this exception is vital—except that neither Sweden nor England nor
any other country will accept balances in other countries' currency
more than a relatively small amount, any more than we would. The
only time countries have been willing to sell goods and accept a foreign
balance of large magnitude has been in the case of India, for example,
where India has sold goods to England and accepted sterling in payment and has at the same time agreed that she will not be able to
use that sterling except under conditions set by England. But that
is because England is at war and England regards India as an ally
and part of the Empire, and believes India should cooperate. The
extent to which India has a choice in the matter is something else
again. But that is quite a special circumstance. You would not get
that situation between countries which are completely independent,
that is, not to the same magnitude. If you did, as Senator Murdock
says, gold would have less importance. If countries were willing to
accept in unlimited extent the currencies of other countries, it would
be a quite different matter.
Senator TAFT. Mr. White
Senator MURDOCK. Well, let us look at it from this angle. Let us
suppose, as has been indicated, I think, by what has been said in England, what has been published in England, and also in this country,



190

BRETTON WOODS AGREEMENTS ACT

that England is rather anxious to get away from gold as an international exchange.
Mr. WHITE. Well, ISenator JJJLKJ IXUKJ^J-IS.,NOW, ,if that t is trueKjyji-i-ajv\jx. MURDOCK.
xi w v
v xx u i a
J.O n u t
Mr. WHITE. Senator, I don5 think that is the case.
Senator MURDOCK. Isn't the natural thing for England to do to
begin by this stepping-stone process of first putting on limits and
then getting away from gold entirely ?
Mr. WHITE. Senator, I don't think that England is at all eager to
get away from gold.
Senator MURDOCK. Well, it has been- intimated that she is.
Mr. WHITE. On the contrary, I think probably England would be
one of the last countries to want to eliminate gold, because her empire is a very large gold producer. The British Empire has a bigger
stake in gold—at least in gold production—than we have.
Senator MURDOCK. That would be my conclusion, but it has. been
intimated during the hearings, as you well recall, that England has
wanted to get away from gold.
Mr. WHITE. Well, no; I quite agree with your conclusion.
Senator MURDOCK. Whether that is true or not, I don't know.
Mr. WHITE. Definitely not, I think.
Senator MURDOCK. It is hard for me to tell.
Mr. WHITE. Definitely not. What England is trying to do is precisely what I think this committee would try to do if we were faced
with the same situation England is faced with; she is trying to make it
possible for her importers to buy as much as they think they reasonably need and can pay for, without pressure on England's gold reserves, because England cannot stand much depletion of her gold
reserves, because her gold reserves are not large.
Senator TAFT. Well, Mr. White, what I want to indicate is, not
only, it seems to me, is this thing a license to continue existing restrictions, but it appears to me as regarded by the British as a license to
extend their restrictions and build up a lot of special arrangements.
Lord Keynes has, I think—perhaps I may have read this before—
said—
It is clearly recognized and agreed that during the postwar transitional period,
of uncertain duration—

incidentally he doesn't say anything about 5 years; it is "uncertain
duration."
Mr. WHITE. But the articles say—and the fund's operations will be
guided by the articles of agreement and not by any statement of Lord
Keynes.
Senator TAFT. Yes; but after 5 years you consult as to*what you
shall do about it, and if the Board doesn't want to insist upon it—and
they won't if the British are very strong about it—the 5 years is going
to be extended indefinitely.
However—
of uncertain duration, we are entitled to retain any of those wartime restrictions
and special arrangements with the sterling area and others which are helpful
to us, without being open to the charge of acting contrary to any general engagements into which we have entered.

And. it occurs to me that they haven't show any indication that they
are going to abolish imperial preferences, that they are going to open



BRETTON WOODS AGREEMENTS ACT

191

their market to our imports. I cannot see anything in this whole
agreement that assures us that we will get what we are supposed to
get, namely, an abolition of the existing restrictions which are said to
have hampered our exports.
Mr. WHITE. Senator, this agreement deals only with the monetary
and credit aspects of international economic transactions, and it does
not deal, as you point out, with the possibility that England may hold
onto her Empire preference so far as trade is concerned. It does not
deal with such things as the height of import quotas The answer to
that is the one that has been given a number of times: That the Bretton
Woods agreement only attempts to help solve the monetary and credit
problems; that there are other problems that remain. There are
commercial policy problems that remain. Some of those other problems will be the subject for discussion or legislation in Congress. You
are considering right now the reciprocal trade agreements, which is
another phase of the problem. They are all interrelated, but Bretton
Woods deals only with the monetary and credit aspects; and as it does
deal with them effectively, it, in our opinion, constitutes a long step
toward the elimination of restrictions, of monetary practices, which
stand in the way of an expanding w^orld trade.
Senator MILLIKIN. Mr. Chairman.
The CHAIRMAN. Senator Millikin.
Senator MILLIKIN. Senator Taft, would you mind specifying, before you leave this subject, how many agreements of that type have
been entered into by Great Britain ?
Senator TAFT. I don't know, frankly.
Mr. WHITE. I will be glad to give you what information we have.
Senator TAFT. I have here a copy
Senator MILLIKIN. Will you put it in the record?
Mr. WHITE. Yes; I will be glad to.
Senator TAFT. I have here a copy of the agreement between England
and France—the French Eepublic—which deals in general with the
immediate problems but contains an annex that is very much similar
to the Swedish agreement. I shall be glad to put that in, and perhaps
Dr. White could produce
Mr. WHITE. I will submit a list.
Senator TAFT. I have also an Anglo-Chilean exchange agreement,
but that was prewar really, made about 1940, and I don't think it has—
it may not be the last one.
Mr. WHITE. There are a number of them, and England probably
will attempt to consummate more. Their basic pattern is the same.
There are differences as to amounts and differences as to certain adjustments and settlements, but the basic pattern is the same; and they,
as I say, are consummated with our knowledge. That is what they
should do in the circumstances that they are in, and they will help
reestablish world trade and help put England on Its feet economically,
and help put many other countries on their feet economically, and to
the extent to which they do so do they lessen the pressure on their
demands for assistance from us.
Senator BARKLEY. IS there any basic inconsistency between those
bilateral agreements that cover a field not necessarily covered by this




192

BRETTON WOODS AGREEMENTS ACT

Bretton Woods agreement, and the agreement here that we are considering?
Mr. WHITE. NO, Senator Barkley. They assist in reaching the stage
that is one of the objectives of the Bretton Woods agreements. The
situation which those countries are in makes it necessary for them
to explore all those possibilities to reduce their pressure and dependence upon the International Fund.
We were asked about it. They maintained there was nothing
inconsistent with the Bretton Woods agreements. We agree that it
was desirable for such steps to be taken. It will help the functioning
of the fund, and it will make conditions move more rapidly to that
ideal state when we can have multilateral clearing.
Senator MURDOCK. Mr. Chairman, in answer to Senator Barkley's
question, it might be interesting to just read article 8 here; that is,
the first part of that.
Mr. WHITE. Yes.
Senator MURDOCK

(reading) :

If, during the currency of this agreement—

this is the Swedish-English agreement—
either of the contracting governments adheres to a general international monetary agreement, the terms of the present agreement shall be reviewed with a view
to making any amendments that may be required.

Mr. WHITE. I am very glad you caught that, Senator. My colleague just slipped me a note reminding me of the fact that when the
agreements are between members the document states that they are
consistent with the fund undertaking. They didn't want to undertake any arrangement
Senator TAFT. Well, may I suggest I wasn't saying it was inconsistent with the fund. My point was that it was consistent with the
fund, that the fund expressly permits, apparently, the continuing of
this kind of special agreement for 5 years or indefinitely thereafter.
The suggestion is not that. My whole point has been that the agreement is so drawn that it itself permits the defeat of the very purposes
that are said to be the principal purposes of the fund. I am not so
sure about Sweden, because that might be a doubtful question.
Mr. WHITE. If you will go over each one of the purposes which are
in article I, I think that you probably will find that they are all very
excellent purposes and that if any action that any government takes
is in accord with those purposes, and no action that any member government takes is out of accord with those purposes, we shall have
achieved a state of international economic relations and a state of
world prosperity and peaceful relations that is much to be desired.
Senator TOBEY. According to what you have just read, then, isn't it
a fact that the net result is that these other nations may have these
multi- or bi-lateral arrangements but recognize that when the fund
is a fait accompli in effect that is the major document and the major
movement that will supersede these other things ?
Mr. WHITE. It will make them subsidiary.
Senator TOBEY. That is what I am getting at: make the fund
predominant.
Mr. WHITE. That is right. I think the point that is expressed in
one of your remarks, Senator Taft, is well taken, and it is this: that




BRETTON WOODS AGREEMENTS ACT

193

the progress that we can make in this area is gradual; that in view
of the very disrupted conditions of the past 10 years you cannot attempt to introduce a completely orderly and ideal arrangement in a
short period of time. It is just as though you are dealing with an
individual who has suffered severe wounds as a result of a bomb exploded right near him, and you cannot get him back to working state
as quickly as you would like. You have to heal certain wounds; you
have to permit him time to make his adjustments, et cetera. But our
program, which is the important thing, Senator, is looking toward
steady progress each year being made toward reaching that state of
affairs that I think we all want.
Senator TAFT. My suggestion is that you can only reach that state
of affairs by direct agreement of a much more drastic character settling other questions besides this with each country, and that as far
as this is concerned there is no immediate need for it; that 3 years
from now is just as good as now. The very fact that you have to
except from it shows it. In other words, it is the cart-before-thehorse argument you referred to as to that, and I think it is an eminently
sound argument. I think that if you want to cure these things you
have got to cure them by an agreement with each country in some
way.
Mr. WHITE. The only thing, I think I would say that
Senator TAFT. And outside the realm of monetary. My point is
that the other questions, trade questions, are far more important than
monetary.
Mr. WHITE. Well, you may have that feeling, but Bretton Woods
attacks the monetary and credit problem, which is a very important
part of the others. Without settlement of the monetary aspects you
would have a very difficult time settling the other trade problems.
And with respect to making special bilateral agreements I think you
will find, Senator, that few countries would give up the sort of thing
that you are suggesting through bilateral arrangement with us. England wouldn't consider for one moment making a bilateral arrangement with us which would call for elimination of all her restrictions,
or exchange transactions unless we did one thing: unless we were willing to say to England, "All right; you remove your restrictions. You
put an end to these various bilateral arrangements. We'll finance
you. We'll supply you with all the dollars you need."
Senator TAFT. Not all the dollars they need, I hope.
Mr. WHITE. Well, all the gold they need.
Senator TAFT. I would be in favor of some reasonable adjustment,
but not anything they ask for.
Mr. WHITE. If we were willing to finance them to a very great extent, if we were willing to say to England: "We will give you"—not
loan you, mind you, because they have stated, I believe, they would
hesitate to undertake large loans because they only have to pay them
back and with interest.
Senator TAFT. I don't understand that.
Mr. WHITE. And they say, "If you will give us some lend-lease, or,
if you don't like the word 'lend-lease' maybe you can find some other
word the effect of which will be the same; if you are willing to give




194

BRETTON WOODS AGREEMENTS ACT

us a large sum of money, you will solve our present problem." There
is one important person, connected with a very large bank, who has
even suggested that we give England $5,000,000,000. Well, that is
very generous of him to suggest that the American people give England $5,000,000,000 and after we give England $5,000,000,000 you will
help her solve a lot of her problems, but you also will have on your
hands the problems of some 30 or 40 other countries, who may want
$25,000,000,000 and I can think of no w a y Senator TAFT. I am not associated with any large bank, and I am
not in favor of giving away $25,000,000,000.
Mr. WHITE. NO, Senator; I was not quoting you. This was somebody else.
Senator TOBEY. And it begins with "A," doesn't it ?
Senator RADCLIFFE. Dr. White, you stated just a moment ago, I
think, that trade agreements may be intrinsically more important than
this monetary arrangement.
Mr. WHITE. I stated that it would be intrinsically more important ?
Senator RADCLIFFE. Well, I don't know whether you went as far as
that or not. Senator Taft may have.
Mr. WHITE. NO ; I wouldn't have said that, because I don't believe
that, Senator.
Senator RADCLIFFE. Well, assuming it, whether you did or not say so.
Mr. WHITE. I see.
Senator RADCLIFFE.

But you also stated—and you did state, I think,
that you felt that the putting into operation of these monetary arrangemens would have a tendency to facilitate making trade agreements.
Mr. WHITE. True.
Senator RADCLIFFE, Trade arrangements. Now, you wouldn't suggest, would you, that these monetary proposals be held up so that the
two could be worked out simultaneously, would you?
Mr. WHITE. NO ; definitely, I would not. It is easier to make trade
arrangement after you have had monetary arrangements.
Senator RADCLIFFE. In other words, this is a natural step ?
Mr. WHITE. I should think so.
Senator RADCLIFFE. And you think it is a natural step toward working out trade agreements, agreements with regard to trade, later on?
Mr. WHITE. That was the opinion, I think, of most of the experts.
When we were considering the sequence of proposed solution of the
postwar problems, it was agreed that the monetary was most urgent.
Senator RADCLIFFE. At least, the making of these agreements
wouldn't tend to militate against or in any way impede the making of
trade agrements later on?
Mr. WHITE. Oh, no.
Senator TAFT. Mr. White,

are not the currencies of these principal
countries fixed today by agreement de facto? Don't we have an
agreement
Mr. WHITE. In some cases.
Senator TAFT. Don't we have an agreement with Great Britain for
the pound at $4.02^ or $4.03? You so stated sometime, I think,
yesterday.
Mr. WHITE. I don't remember having stated we had an agreement
with them, Senator.




BRETTON WOODS AGREEMENTS ACT

195

Senator TAFT. I just put in the record an agreement of England and
France in which the franc is stabilized with the pound at 200 francs to
the pound. I have just put an agreement in the record, an agreement
with Sweden, by which the Swedish krona is stabilized with the pound,
16.9 kronor to the pound.
Mr. WHITE. Yes.

(Financial agreement between Great Britain and French Republic
is as follows:)
France No. 1 (1945)
FINANCIAL AGEEEMENT BETWEEN THE GOVERNMENT OF THE UNITED KINGDOM OF
GREAT BRITAIN AND NORTHERN IRELAND AND THE PROVISIONAL GOVERNMENT OF
THE FRENCH REPUBLIC

Paris, 27th March, 1945
Presented by the Secretary of State for Foreign Affairs to Parliament by
Command of His Majesty
THE Provisional Government of the French Republic (hereafter called the
French Government) and the Government of the United Kingdom of Great Britain
and Northern Ireland (hereafter called the Government of the United Kingdom) :
Desirous of developing to the m'aximum commercial exchanges between the
franc area and the sterling area, and of facilitating current settlements, especially
commercial payments, between the two areas ; and, further,
Desirous, of reaching a final settlement of the various financial claims which
have arisen between the two Governments since the beginning of the war,
Have agreed as follows :—
SECTION 1.
ARTICLE 1.

1.— (a) The Government of the United Kingdom shall make available to the
French Government a non-interest bearing credit up to £100 millions, to be 'available up to the 28th February, 1946. The Bank of England shall open in the name
of the French Government an account to be called Account A, to which instalments of this credit shall be paid at the request of the Bank of France (acting as
the 'agent of the French Government). This Account A will be utilised by the
French Government in order to provide funds, so far as this is necessary, for the
account of the Bank of France at the Bank of England.
(&) The French Government shall make available to the Government of the
United Kingdom a non-interest bearing credit up to Francs 20 milliards, to be
available up to the 28th February, 1946. The Bank of France shall open in the
name of the Government of the United Kingdom an account to be called Account
A, to which instalments of this credit shall be paid at the request of the Bank of
England (acting as the agent of the Government of the United Kingdom). This
Account A will be utilised by the Government of the United Kingdom to provide
funds, so far as this is necessary, for the account of the Bank of England at the
Bank of France.
(c) If the figure of £100 millions mentioned in sub-paragraph (a) above, or
the figure of Francs 20 milliards mentioned in sub-paragraph (&) above, should
prove insufficient, the two Governments shall consult together with 'a view to
increasing these figures as necessary in order that there shall always be sufficient
funds in the account of the Bank of France at the Bank of England and in the
account of the Bank of England at the B'ank of France.
2. On the 28th February, 1946, a balance shall be struck by comparing the
drawing to date of the Government of the United Kingdom and the French Government on their respective A Accounts. This balance shall be struck in the
currency of the creditor Government. To this end the drawings made in the
currency of the debtor Government shall be converted into the currency of the
creditor Government on the basis of the official rate of exchange in force at the
date of each drawing.



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BRETTON WOODS AGREEMENTS ACT
ABTICLE 2.

1. If, on the 28th February, 1946, the calculation referred to in Article 1 (2)
above results in a balance in sterling due from the French Government to the
Government of the United Kingdom, this balance shall be settled as follows:—
(a) The French Government shall discharge the balance in gold up to the
equivalent of one-third of the gross total of the payments in franc or sterling
currencies made during the year ending the 28th February, 1946, from the franc
area to the sterling area, excluding those payments made out of Account B
referred to in Article 4 below. This total shall be determined by agreement between the Bank of France and the Bank of England.
(&) If Account B referred to in Article 4 below shows on the 28th February,
1946, a balance in sterling in favour of the French Government, the French Government shall utilise this balance, in so far as is necessary, to pay the remainder
of the amount due by them after the payment in gold mentioned in sub-paragraph (a) above.
(c) If the payment mentioned in sub-paragraph (&) above shall not be sufficient to liquidate the remainder of the amount due by the French Government, the
balance which shall not have been reimbursed on the 28th February, 1946, shall
be carried forward on conditions to be agreed between the two Governments.
2. If, on the 28th February, 1946, the calculation referred to in Article 1 (2)
above results in a balance in francs due from the Government of the United
Kingdom to the French Government, this balance shall be settled as follows:—
(a) The Government of the United Kingdom shall discharge the balance in
gold up to the equivalent of one-third of the total of the payments in sterling or
franc currencies made during the year ending the 28th February, 1946, from the
sterling area to the franc area, excluding those payments which are made into
Account B referred to in Article 4 below. This total shall be determined by
agreement between the Bank of France and the Bank of England.
(&) If the payment mentioned in sub-paragraph (a) above shall not be sufficient to cover the total amount due by the Government of the United Kingdom,
the balance which shall not have been reimbursed on the 28th February, 1946,
shall be carried forward on conditions to be agreed between the two Governments.
ARTICLE 3.

As from the date of coming into force of this Agreement settlements between
the franc area and the sterling area as well as the general monetary relations
between the two areas shall be regulated by the technical provisions set out in
the Annex to this Agreement.
SECTION 2.
ARTICLE 4.

1. The Bank of England (acting as agent for the Government of the United
Kingdom) shall open a sterling account to be called Account B in the name of
the French Government.
2. The following sums shall be credited to Account B:—
(a) As soon as possible after the signature of this Agreement the French
Government shall pay into Account B, by drawing on Account A mentioned in
Article 1 (1) (a) above, the sum of £40 millions, which shall be deemed by the
two contracting Governments to be the equivalent of the excess of the sterling
monies in the United Kingdom belonging at the date of this Agreement to persons
resident in Continental France over the franc monies belonging at the same date
to Continental France to persons resident in the United Kingdom.
(&) The Government of the United Kingdom shall pay into Account B the
following sums:—
(i) The balance in the Franco-British Liquidation Account established in
July 1940.
(ii) Sums due by the Government of the United Kingdom resulting from
the use since June 1940 of French merchant ships and from the disposal of
cargoes belonging to persons resident in the franc area.
(iii) Sterling sums due by the Government of the United Kingdom to the
French Government in connection with the expenditure of the British Armed



BRETTON WOODS AGREEMENTS ACT

197

Forces in the franc area during the period prior to the entry into force of
the present Agreement.
3. The French Governrment shall pay out of Account B, as soon as funds are
available, the following sums:—
(a) The sum due by the French Government to the Government of the United
Kingdom as reimbursement of the advances made by the latter to the French
National Committee in accordance with the term's of the Agreement of the 7th
August, 1940, C) between the British Prime Minister and General de Gaulle.
This sum shall be determined by agreement between the two Governments.
(6) Sums due by the French Government to the Government of the United
Kingdom for the period prior to the entry into force of the present Agreement
in connection with supplies furnished for the civil population of Continental
France by the Allied Armed Forces.
4. Any further sums may be paid into or out of Account B by agreement between
the two Governments.
ARTICLE 5.

1. The Anglo-French Financial Agreement of the 12th December, 1939, is
hereby abrogated, and no claims shall be made by either contracting Government against the other in respect of its provisions.
2. The two Governments being desirous of waiving all further financial claims
against one another arising out of the prosecution of the war have agreed as
follows:—
(i) The French Government shall waive their claim to all payments by the
Government of the United Kingdom for—{a) T he transfer to the Government of the United Kingdom on the 16th
June, 1940, of the munition contracts in course of execution in the United
States for the account of the French Government.
(&) The repayment of sums disbursed by the French Treasury in respect
of debts contracted in France prior to June 1940 by the British Expeditionary
Force.
(c) Repayment of the balance in favour of the French Government in
the Reciprocal Advances Account set up in 1940.
(d) War material made available in 1940 by the French Government to
the Finnish Government on behalf of the Government of the United Kingdom.
(ii) The Government of the United Kingdom shall waive their claim to all
payments by the French Government for—
(a) War material furnished to the Turkish Government by the Government of the United Kingdom on behalf of the French Government.
(&) War material furnished prior to the 1st July, 1940, by the Government of the United Kingdom to the French Government.
(c) Expenditure of the Government of the United Kingdom on the maintenance of French troops in the United Kingdom in 1940, other than expenditure incurred under the provisions of the Agreement of the 7th August, 1940,
between the British Prime Minister and General de Gaulle,
(iii) (a) The Government of the United Kingdom shall make available to the
French Government, free of cost, in accordance with the Annex to this Article, supplies of goods and services of agreed categories which shall be estimated by common agreement to represent a total value of £45 millions.
(6) No part of the above supplies shall be sold by the French Government
outside French territories.
(c) The two Governments shall co-operate to ensure that the total deliveries arranged under this paragraph shall reach the agreed amount.
(d) The two Governments shall also co-operate with a view to determining which supplies and services shall fall within the scope of this paragraph, and which shall fall within the scope of Mutual Aid.
(iv) In application of the provisions of paragraph 2 (i) (a) above, the French.
Government shall refund to the Government of the United Kingdom the sums
which the latter has paid in dollars to an account at the Bank of Canada in connection with the transfer of the said munition contracts. This repayment shall
be made by instalments part passu with the implementation of the programme of
deliveries referred to in paragraph 2 (iii) (a) above.
i "France No. 2 (1940)."




Cmd. 6220.

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BRETTON WOODS AGREEMENTS ACT
ANNEX TO ARTICLE 5.

(1) The two Governments will consult together from time to time to draw
up the lists of supplies, materials, equipment and services referred to in Article
5, paragraph 2 (Hi). They will draw up the first list as soon as possible.
(2) The supplies, materials, and equipment referred to may include any new
or second-hand article (apart from raw materials), which is, or which may become, the property of the Government of the United Kingdom, and has been produced or acquired for war purposes.
(3) The deliveries of the supplies, materials and equipment referred to in the
preceding paragraph may be either for the use of the French Military, Naval and
Air Forces, having regard to Article 5, paragraph 2 (iii) (d), or for the satisfaction of French civilian needs, and may include such categories as materials,
equipment and installations for ports, railways, inland waterways, road, sea and
air transport, public works, telecommunications, mines, public utilities, hospitals,
housing, &c, as well as for manufacturing industries. This enumeration is purely
indicative, and is only intended to show those classes of French civilian needs
which are most pressing.
(4) The services may include in particular those required in connection with
the shipment and delivery of supplies, to which reference has been made above,
and to charges for hire of such goods.
(5) The two Governments will do all in their power to see that the programme
is implemented with the least possible delay.
(6) The global value of the supplies, materials and equipment included in each
list will be determined by common agreement, on the basis of original cost, after
making suitable deduction for depreciation due to wear and tear.
SECTION 3.
ARTICLE 6.

1. The Government of the United Kingdom shall make available to the French
Government any information which, by virtue of the British regulations regarding
trade with countries in enemy occupation it may possess concerning assets in the
sterling area belonging to French nationals residing in the franc area.
2. The French Government shall make available to the Government of the
United Kingdom on a reciprocal basis any information which it may have regarding assets in the franc area belonging to persons of British nationality residing in
the sterling area.
SECTION 4.
ARTICLE 7.

The Financial Agreement of the 8th February, 1944, between the French Committee of National Liberation and the Government of the United Kingdom shall
be abrogated as from the date of the signature of this Agreement.
ARTICLE 8.

1. The present Agreement shall be deemed to have entered into force on the
1st March, 1945.
2. The provisions of Section 1 of the present Agreement and the Annex attached
thereto shall be valid for one year. At least three months before the end of that
period (that is to say before the 1st December, 1945), conversations shall take
place with a view to examining the possibility of prolonging the provisions of
Section 1 and the Annex for a further period of one year, account being taken of
any modifications which circumstances may render necessary.
In faith whereof the undersigned plenipotentiaries, being duly authorised
thereto, by their respective Governments, have signed the present Agreement
and have affixed thereto their seals.
Done this 27th day of March, 1945, at Paris in duplicate, in English and
French, both texts being equally authentic.
On behalf of the Government of the On behalf of the Provisional GovernUnited Kingdom of Great Britain and
ment of the French Republic:
Northern Ireland:
R PLEVEN

JOHN ANDERSON.



BRETTON WOODS AGREEMENTS ACT

19&

ANNEX TO ANGLO-FRENCH FINANCIAL AGREEMENTS
I.— (i) The Bank of England shall open an account No. 1 in the name of the
Bank of France which shall be credited with:—
(a) Sterling amounts drawn from the credit placed at the disposal of the
French Government by the Government of the United Kingdom in accordance
with Article 1 of the Financial Agreement;
(&) Sterling amounts accruing to the Bank of France as a result of sterling
settlements in accordance with the exchange regulations in force in the Sterling
Area.
(ii) The Bank of France shall open an account No. 1 in the name of the Bank
of England, which shall be credited with:—
(a) Franc amounts drawn from the credit placed at the disposal of the Government of the United Kingdom by the French Government in accordance with
Article 1 of the Financial Agreement;
(&) Franc amounts accruing to the Bank of England as a result of franc
settlements in accordance with the exchange regulations in force in the Franc
Area.
(iii) Each of the two Banks is required at all times, on the request of the"
other, to re-purchase at the official rate the balance on No. 1 Account standing in:
the name of the other, even though such re-purchase would necessitate drawing
on the credits referred to above.
II.—To the extent required for the execution of the Financial Agreement and
of the present Annex the Bank of France and the Bank of England shall sell
each other gold on a basis agreed upon between them.
III.— (i) The Government of the United Kingdom shall not restrict the free use
of sterling which may be at the disposal of residents of the Franc Area for:—
(a) All transfers to other residents of the Franc Area.
(6) All payments to other residents of the Sterling Area.
(c) Transfers to residents of countries not included in the Franc or Sterling
Areas to the extent that they may be sanctioned by the Government of the
United Kingdom in application of the arrangements contemplated in paragraph
VII (iii) (a) below.
(ii The French Government shall not restrict the free use of francs which;
may be at the disposal of residents of the Sterling Area for :—
(a) All transfers to other residents of the Sterling Area ;
(b) All payments to residents of the Franc Area ;
(c) Transfers to residents of countries not included in the Franc or Sterling
Areas to the extent that they may be sanctioned by the French Government in
application of the arrangements contemplated in paragraph VII (iii) (aj below.
IV.— (i) To the extent that the Bank of France requires currencies of territories of the Sterling Area (other than sterling) in order to make payments in
such territories the Bank of France shall purchase such currencies through the
Bank of England against payment in sterling.
(ii) To the extent that the Bank of E'ngland requires currencies of territories
of the Franc Area (other than the French franc) in order to make payments
in such territories the Bank of England shall purchase such currencies through
the Bank of France against payment in francs.
V.—The Authorities responsible for Exchange Control shall mutually assist
one another to keep capital movements between the two areas within the scope
of their respective policies and in particular in order to'prevent transfers which
would not serve direct and useful economic or commercial purposes.
VI.—Any sterling held by the Bank of France may be held and invested only
as may be agreed by the Bank of England and any francs held by the Bank of
England may be held or invested only as may be agreed by the Bank of France.
VII.— (i) If during the period of application of the present Annex the two
Governments become parties to a general international monetary agreement^
they shall review the provisions of the present Annex with a view to making
any amendments which may prove necessary.
(ii) So long as the present Annex remains in force the two Governments shall.,
mutually assist one another to ensure its application with the necessary elasticity as circumstances shall require. The Bank of France and the Bank of England, acting for account of their respective Governments, shall maintain contact
on all technical questions raised by the Agreement and shall collaborate closely
on questions of exchange control affecting the two areas.
(iii) The French Government and the Government of the United Kingdom
shall endeavour with the consent of the other interested parties—



200

BRETTON WOODS AGREEMENTS ACT

(a) To make the francs which may be at the disposal of residents ot the
Sterling Area and sterling which may be at the disposal of residents in the Franc
Area available for payments of a current nature to residents of countries not
included in the Franc and Sterling Areas.
(6) To permit residents of countries not included in the Franc and Sterling
Areas to use the sterling which may be at their disposal to effect payments of a
current nature to residents of the Franc Area and francs which may be at their
disposal to effect payments of a current nature to residents of the Sterling Area.
(iv) Notwithstanding that each of the two Governments shall be alone
responsible for its monetary relations with third countries, they shall maintain
contact wherever the monetary relations of the one affect the interests of the
other.
VIII.—All sterling transactions in the Franc Area and all franc transactions
in the Sterling Area shall be settled on the basis of the official rate of exchange.
The official rate (at present Frcs. 200=£l) may only be modified after mutual
consultation.
IX.—For the purposes of the application of the Financial Agreement dated this
day and of the present Annex—
(i) The expression "Sterling Area" shall have the meaning assigned to it from
time to time by the Exchange Control Regulations in force in the United Kingdom.
(ii) The expression "Franc Area" shall comprise the following territories:—
Metropolitan France (which includes Corsica and Algeria).
French West Africa.
French Equatoral Africa.
Madgascar and its dependencies.
Reunion.
French Somali Coast.
French Guiana.
Guadeloupe.
Martinique.
St. Pierre and Miquelon.
French Establishments in India.
Indo-China.
New Caledonia.
French Establishments in Oceania.
The Condominium of the New Hebrides.
The Protectorates of Morocco and Tunisia.
The French Mandated Territories of Cameroon and Togo.
Syria and Lebanon.
(iii) Notwithstanding paragraph (ii) above, the provisions of the Financial
Agreement dated this day and of the present Annex shall only apply to IndoChina when the whole of its territory has been liberated.
(iv) The foregoing provisions shall not modify the existing arrangements
under which the Condominium of the New Hebrides and the French Establishments in India which form part of the Franc Area defined in paragraph (ii)
shall be regarded for certain purposes of exchange control as forming part
of the Sterling Area.
(v) Settlements effected by the Government of any territory included in
one of the two areas defined above shall be regarded as settlements effected by a
resident of the said area.

Senator TAFT. We have an agreement with France tentatively, apparently, which our soldiers are suffering under, by which a franc is
equal to 2 cents. I suggest that as far as their monetary stabilization
is concerned, it is done now as far as the value is concerned, as far as
stabilizing it is concerned; and now all this agreement does is to look
forward 5 years to a time when there are some things that are coming
into force, but that, as a practical matter, England—there is nothing
that we accomplish today except exactly what we have got.
Mr. WHITE. Senator Taft, there is only one fly in that very lovely
ointment of yours, and theflyis so big that there is very little ointment
left. What you call an agreement is not really an agreement in the
sense in which we are using the term "agreement" in the International
Fund.



BRETTON WOODS AGREEMENTS ACT

201

Senator TAFT. I suggest it is not really an agreement, either, on these
questions.
Mr. WHITE. Well, may I explain that, Senator, because any one of
the countries can alter its rate unilaterally merely by informing the
other and withdrawing from an agreement which doesn't mean a great
deal to either party. Now, what we are trying to do is to get a multilateral arrangement in which countries cannot alter exchange rates,
and so forth, except by multilateral approval. We have an arrangement with Mexico, Senator
Senator TAFT. But I suggest that the fund doesn't do that; that for
5 years they can keep all the restrictions they want; that they can devalue their currency 10 percent without even saying "boo"; that they
can devalue their currency more than that if they can set up
Mr. WHITE. If they can say "boo" loud enough. [Laughter].
Senator TAFT. Well, no; if it is a fundamental disequilibrium. And
goodness knows, every country is in a fundamental disequilibrium. It
exists by hypothesis at the moment. Now, that may mean something 5
years from now, but it doesn't mean anything today.
Mr. WHITE. I am glad you spoke of fundamental disequilibrium,
because I had wanted to explain possibly a little more carefully what
that term means.
Senator DOWNEY. Mr. Chairman, before Mr. White finishes, if I
may make this comment, Mr. White and Senator Taft seem at some
previous meeting to have compared equilibrium here to a cart and a
horse, if I understand the colloquy.
Mr. WHITE. I didn't. I think it was Mr. Acheson.
Senator DOWNEY. Let me say this: It would look to me as though
the equilibrium that is now facing the world might very well be compared to a jigsaw puzzle in which we have many pieces that we have
to fit together, and I think the sooner we can get any one of them into
place the better we shall work out the whole problem. When we can
get in Dumbarton Oaks, that is one piece of the jigsaw puzzle. When
we can get petroleum fixed, that is another; aviation, another; food,
another; Bretton Woods, another; reciprocal trade agreements, another; and so on. So as far as I am concerned, I am going to take
the viewpoint that even though we have to put the tail on the horse
before we put on the head, why, let us get in what we can as fast as we
can.
Mr. WHITE. That is a splendid analogy, Senator. I am going to use
it, with your permission, at the next opportunity, because I think
it is much more realistic than the horse-and-cart analogy.
Senator DOWNEY. The Senator from Ohio may like to draw the
cart-before-the-horse case. I think it is a more complicated problem,
and I think we have to have more elasticity than we had in the past.
Senator BARKLEY. We may hope for it.
Senator TAFT. I think the Senator will hear from a great many
expert witnesses who will take pretty much the position I suggest, but
I am perfectly willing to leave it until we hear further.
Mr. WHITE. I think he probably could hear—I don't know that
he will hear, but he could hear from many more experts that his
analogy is an excellent one.
Senator BARKLEY. If I might ask about these so-called stabilizing
bilateral agreements with regard to currency, of course it was necessary in this temporary situation for the countries to enter into some



202

BRETTON WOODS AGREEMENTS ACT

sort of arrangement by which the value of the franc and the pound and
the dollar might be understood. Back in World War I the franc
was worth—well, I would say around 15 cents, I think they got.
Mr. WHITE. Before, 20 cents when it started.
Senator BARKLEY. Twenty cents first, or 5 francs for a dollar, and
it went down to 6 or 7, and now the franc, due to the invasion and the
impotence of the French Government, has descended to almost nothing,
and there had to be some understanding as to how much a franc was
worth in dollars. So they agreed on 50 francs to the dollar. But it
so happens that in many instances—it is going on, I suppose, all the
time—that those who have more francs than they need particularly,
or who have francs they want to get rid of because of lack of confidence in the franc, will give 250 francs for a dollar, or 200. It is a
matter of common knowledge
Mr. WHITE. That is right.
Senator BARKLEY. That, notwithstanding this effort to stabilize the
franc, under some circumstances you can get 200 or 250 francs for
a dollar.
Now, if it had not been for this effort to stabilize the franc at 2 cents,
there isn't any way to tell how low the franc would have gone in the
matter of exchange compared to the dollar, and that would be true of
all these countries, wouldn't it ?
Mr. WHITE. That is a very good point, Senator Barkley, because
when the question of the value of the franc came up for discussion
our concern was the one that you pointed out: we had to pay, or we
felt we had to pay, the soldiers in francs; and the reason for that I'll
j)oint out in a minute. It bears on this whole problem along the
lines that you have indicated. We had to decide how much we were
going to pay our soldiers. After all, Congress states that the soldiers
shall receive a certain monthly wage in dollars, but how many francs
does that mean ? We had to have an understanding of what the soldier
was to receive. The French Government said that their rate was
going to be 2 cents, so the American soldier receives 50 francs for his
dollar. And, incidentally, that wage in francs will be supplemented
by other things. It has been supplemented by some, but it will be
by more. So that the soldier will be better taken care of than he has
been. That is a separate matter, and if your committee is interested
in it the Army or Treasury can supply you with further details.
However
Senator MCFARLAND. It had to be a supplementary agreement.
Mr. WHITE. I would like to add, Senator, that if we hadn't paid
them in francs there was only one alternative, and that was to pay them
in dollars. Now, if we paid them in dollars, it would have meant that
every soldier would have dollars in his pocket. He would be an individual exchange operator, you see. He would go on the market: "And
how much can I get for this in francs?" And nothing would have
contributed more to the monetary disruption in France; to depreciation, as you said, of the franc, and to inflation in France, than an openwide, free exchange between dollars and francs, with the soldier receiving a new supply of dollars monthly. You would find that the franc
might probably be lower even than it is on the black market today. It
was to prevent that from happening that we agreed to pay our soldiers
in francs.




BRETTON WOODS AGREEMENTS ACT

203

Senator BARKLEY. Well, of course, it is a scandalous situation to
have had our soldiers engaging in black market with francs or dollars,
either. Of course, all their allotments are paid in dollars to those to
whom they are made in this country. The only use that a soldier had
for francs in France was to buy something maybe that he wanted to
send home, or presents, gifts, or luxuries of one kind or another, because he got his food and clothing. He didn't have to buy that. And
while this whole situation, the depreciation of the franc, has skyrocketed prices in France so that you can hardly buy anything for
any reasonable amount—I bought a little trinket, a little pair of
earrings. It cost 271 francs. Well, in normal times that would be
almost as much money as you would pay for a gold trinket of that
sort. This was just a cheap thing. Well, of course, none of us has
to buy those things, but if we do buy them we have to pay the price.
But it seems to me that there wasn't any way to have avoided
some injustice to not only our soldiers but other soldiers who were
accepting the franc at 50 per dollar, if he saw fit to buy things that
he wanted to buy with the franc. Otherwise, if you paid him in
dollars over there he would have been hawking those dollars around
all over France, and maybe outside of France, to see how much he
could get for them; and that, it seems to me, would have been an
impossible situation.
Mr. WHITE. It would, Senator, because one of the consequences of
that would have been to so depreciate the franc and to so disrupt the
monetary system of France that any government that was in control
at that time would have been very greatly weakened and might even
have been overthrown. It is important, when a government returns
from exile that it gain the confidence of the people and for the people
to have confidence in their currency. If we had contributed in any
marked degree to a rapid deterioration of the franc it would have
meant not only a serious economic situation, but it might have meant
a serious political situation at a time, you remember, when we had
not yet defeated Germany.
Senator MCFARLAND. Yes, but, Mr. White
•
Senator MILLIKIN. I have a question.
Mr. WHITE. He has a question first, Senator.
Senator MCFARLAND. In fixing the value of a franc, shouldn't you
base the exchange rate on the number of francs it takes to purchase
goods in relation to the purchase of the same goods in the United
States? You should get a fair valuation, not an unfair valuation.
You are not deflating the franc, if a franc is actually worth, for instance, 300 to the dollar, by fixing that as the exchange. It is already
in that condition, and that is about the value of the franc if you are
going to buy something on the market there. Now, we haven't helped
values any. The only thing we have done is penalize our boys.
Mr. WHITE. Well, Senator McFarland, the first statement you have
made is quite correct, that one of the factors, and an important factor—
it is only one of the factors—that goes into the determination of a
reasonable rate is, as you described it, the relative purchasing power of
currency in a country. There" are other factors. But when we say
that we didn't want to encourage depreciation we refer to psychological
and monetary phenomena which can have disastrous consequences. I
can explain further, off the record, by taking a specific case.
75673—45



14

204

BRETTON WOODS AGREEMENTS ACT

(There was colloquy off the record.)
Senator MILLIKIN. Mr. Chairman.
The CHAIRMAN. Yes.
Senator MILLIKIN. I

should like to suggest that we can carry this
argument of paying our soldier in the currency of the land in which
he happens to be—you can carry that too far. In France, for example, they have a very practical way of alleviating the advantage
of the dollar, when the dollar has an advantage, in the hands of an
American citizen. The merchant simply charges the American citiizen twice as much as he does the French citizen, and that is the
traditional way of handling those matters, and it works out all right
so far as the French are concerned.
Senator BARKLEY. The same thing happened in the last war, although it has been a little worse in this war.
Senator MILLIKIN. The same thing happened during the twenties
when we had dollar advantages in France. The merchants simply
obviated the advantage by charging the American more.
Senator BARKLEY. Yes.
Senator MILLIKIN. If you wanted to beat that game you had to hire
a professional shopper who was a Frenchman to go out and buy your
stuff for you.
Mr. WHITE. Then, too, I think, you know, the American soldier
naturally picks the best places to buy. He goes to the Rue de Eivoli
where the shops are very much like some of the Fifty-seventh Street
or Fifth Avenue shops, where prices even to local residents are not
low. So that, too, is undoubtedly a factor, as you say.
Senator MILLIKIN. Yes. And the French luxury trades are a very
important part of the French economy and the French merchants
dealing in French luxuries have always been able to protect themselves
very nicely against any advantage that the dollar might have.
Mr. WHITE. YOU know, off the record, Senator.
(There was colloquy off the record.)
Senator BUTLER. Mr. Chairman, if we are through with this particular point now, I should like to ask one question of Mr. White.
The CHAIRMAN. Certainly.
Senator BUTLER. AS I understand it, none of the nations which
are supposed ultimately to join this group have acted as yet.
Mr. WHITE. TO my knowledge, Senator Butler, none has acted.
Senator BUTLER. But the attitude of the British Government perhaps is rather friendly toward the proposal ?
Mr. WHITE. We have definite reason to believe that the present
Government is friendly.
Senator BUTLER. Yes.
Mr. WHITE. But they are in the same position as our Congress was
prior to its last election.
Senator BUTLER. They are holding an election over there right
soon.
Mr. WHITE. Soon.
Senator BUTLER. And one of the parties is the Labor Party, English
Labor Party.
Mi;. WHITE. That is correct.
Senator BUTLER. And one of their pet projects is Government ownership of the Bank of England.




BRETTON WOODS AGREEMENTS ACT

205

Mr. WHITE. And some of the large banks, whether they
Senator BUTLER. Yes. If they should be successful in that, would
it be necessary to change any of the provisions in the Bretton Woods
agreement ?
Mr. WHITE. NO sir; because the role which central banks play is that
of fiscal agents of the Government; and if the British Government
were to own the central banks it would be not much different than
in other countries where the central bank is owned by the Government. So it wouldn't require any alteration in the articles of agreement.
Senator BUTLER. DO you think their attitude toward it might be
different?
Mr. WHITE. DO you mean the attitude of the Labor government ?
Senator BUTLER. Yes.
Mr. WHITE. I don't know. I have confidence in the good sense of
the British people.
(There was colloquy off the record.)
The CHAIRMAN. I notice the Senators like to get back to the floor,
and I have arranged, and if it is agreeable to the members of the
committee, to have our hearings continue at 3 o'clock this afternoon
at the District of Columbia room right opposite the floor, and there
we will finish—is there anything else to be ask of Dr. White?
Senator TAFT. YOU mean, do you want to adjourn now?
The CHAIRMAN. I thought then that we might adjourn now until
3 this afternoon. I hope all the Senators will be present.
Senator TOBEY. Will Mr. White continue ?
The CHAIRMAN. Mr. White will continue.
Mr. WHITE. Except Mr. Luxford and Mr. O'Connell may want to
go ahead on some of the amendments and legal aspects.
Senator TAFT. I have two questions more, I think, or two slight lines
to follow.
The CHAIRMAN. All right. Supposing we try that.
Senator TAFT. DO you want to start now ?
The CHAIRMAN. Very well.
Senator TAFT. Mr. White, I have tried to go through here to see in
what respect the United States Government was limited and what
things actually tie our hands in the future, and the first thing I get,
section 4-2
Mr. WHITE. What article, Senator ?
Senator TAFT. Article IV, section 2. We bind ourselves not to
depreciate our dollar more than 10 percent, as I understand it; is that
correct ?
Mr. WHITE. We are subject to the same restrictions.
Senator TAFT. Unless there is some fundamental disequilibrium,
which is not likely to occur.
Mr. WHITE. That is right.
Senator TAFT. Secondly, we have to maintain—we either have to
buy and sell gold or we have to regulate all exchange transactions
within a small fraction of the figure that is fixed.
Mr. WHITE. I would like to correct my earlier statement. We
agree not to alter our gurrency value at all, but we have authority to
alter it 10 percent. Your second statement is correct, as I understand
it.



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Senator TAFT. Then article IV, section 7, is a provision that has not
been commented on, by which the value of gold may be changed.
[Reading:]
Notwithstanding the provisions of section 5-b of this article, the fund, by a
majority of the total voting power, may make uniform proportionate changes
in the par values of the currencies of all members, provided each such change
is approved by every member which has 10 percent or more of the total of the
quotas.

That means, I take it, that the fund board may change the whole
value of gold. They may raise all currencies at once or depreciate all
currencies at once in terms of gold, if they wish to do so.
Mr. WHITE. Only, that in the United States
Senator TAFT. We have a veto power ?
Mr. WHITE. That is right.
Senator TAFT. But if it is done leaving us hanging in the air, there
is almost a compulsion on us to do the same thing, isn't there ?
Mr. WHITE. NO ; I wouldn't think so.
Senator TAFT. If all the currency in the world is depreciated overnight, do you think we could successfully stand out against an effort
to change our currency ?
Mr. WHITE. The first thing you spoke of could be done only with
our approval. The purposes of the provision, I think, would clarify
the matter very materially.
Senator TAFT. Incidentally, it stands to reason that it cannot be
done without the action of Congress.
Mr. WHITE. That is correct, Senator Taft; but I will tell you what
the purpose of that is if you are interested in it.
Senator TAFT. What is that ?
Mr. WHITE. There has been controversy among economists, as you
have in all other scientific fields, in the last generation, about whether
there is enough gold or too much gold; whether the world is producing enough gold to support the expanding population and expanding trade; or whether the world is producing too much gold and thus
promoting steady inflation. Some think there is too much being
produced. Others think too little. Speaking for the Treasury, we
think the problem is academic.
Senator TAFT. I agree with you. You don't think it makes much
difference ?
Mr. WHITE. Well, I wouldn't put it that way, Senator. I would
say that the rate of the production of gold which we foresee in the
foreseeable future does not significantly affect the problem. What
some people are afraid of is that some scientist will in his secret laboratory discover a cheap way of producing gold, such as, for example,
the process of shooting one atom off of lead, thereby getting gold.
Gold has even been made out of sea water, at a terrific expense, but
they fear technological processes may be developed so that somebody
may discover how to make gold very cheaply. If that is the case,
there ought to be some protective clause which would make it possible
to simultaneously alter the value of gold without changing the exchange-rate structure. I t is all in the realm of the highly speculative
developments of science in the future.
Personally, I am not much concerned about the possibility, but
should it happen in the future there is machinery by which the Congress of the United States could approve a change. If, on the other



BRETTON WOODS AGREEMENTS ACT

207

hand, it is felt there is too little gold produced—we do not feel that
is so, either—machinery is provided to 'raise the value of gold, but I
think most people who work in this field feel—in fact, I know only
very few who do not feel the question is rather academic in the foreseeable years.
Senator TAFT. I t seems to me, except for the fact that we have the
veto power
Mr. WHITE. That is why we put that power in.
Senator TAFT. I t seems to me that is the most inflationary provision possible; if we could suddenly raise the value of gold to $150
now instead of $35, it seems to me that contemplates something beyond any common sense.
Mr. WHITE. That is why we insisted on the veto power.
Senator TAFT. My chief reliance is on the veto power. I don't
think Congress would do it.
Mr. WHITE. YOU don't feel badly because we protected our interests in that matter so completely ?
Senator TAFT. NO ; I don't.
Mr. WHITE. That is why it is in, because we felt it was most unwise otherwise.
Senator MILLIKIN. I should like to ask why we are worrying ourselves for fear that someone is liable to knock an atom off of lead.
Mr. WHITE. I am not worrying, Senator.
Senator MILLIKIN. What if someone invents a faster printing
press ?
Mr. WHITE. We would use fewer presses and save some money.
Senator TAFT. Mr. White, article VI, section 2, and article VI, section
1, seem to me to impose a rather——
Mr. WHITE. That is what page ?
Senator TAFT. Page 12. To impose a good deal of restriction.
[Beading:]
A member may not make net use of the fund's resources to meet a large or
sustained outflow of capital, and the fund may request a member to exercise controls to prevent such use of the resources of the fund. If, after receiving sjich a
request, a member fails to exercise appropriate control, the fund may declare the
member ineligible to thse the resources of the fund.

Then you have section 2 also dealing with it, and section 3 controls
capital transfers. Wouldn't that article require us to put a general
restriction on the transfer of exchange and regulate all exchange in
order to know what is capital and what is not capital ?
Mr. WHITE. NO, Senator. This has reference only to countries that
are coming to the fund for assistance. May I cite an illustration which
would clarify that point ?
Let us assume that country X is coming to the fund to buy dollars;
and one of the reasons why it needs so many dollars, why there is constant pressure on its currency is because there is a flight of capital from
that country. People are losing confidence in it. Speculators anticipate an exchange profit, and they are getting out of that currency into
dollars or sterling. That is what we call a flight of capital.
Now, the fund is not in any sense set up for the purpose of promoting
a flight of capital. That kind of a flight of capital does not do
anyone any good except the speculator. It is bad for the country. I t
is disruptive of economies in general. So the fund says to that particu


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BRETTON WOODS AGREEMENTS ACT

lar country: "You are coming to the fund to buy dollars or francs or
sterling, or whatever it may be, and the reason why you need all that
is not for trade, not to pay for goods which you are buying, but to
finance speculative dealings or flights of currency. You will have to
do something about that, or you cannot get more foreign exchange from
the fund.
Now, one of the things that you can do, one of the things that most
countries do—that all countries do now—is to put restrictions on capital exports by requiring permits to purchase exchange. I t isn't anything we would do. I t is something that a particular country might
have to do if it wanted to continue to buy currency from the fund.
Senator TAFT. But we might want to do it. I am just talking now
about what might happen.
Mr. WHITE. If our investors want to invest abroad, I doubt very
much that we would put any restrictions on them. We would not
be coming to the fund, in any case, until our reserves were a lot lower.
Senator TAFT. YOU haven5t been too anxious to let the South American countries take gold out of the United States.
Mr. WHITE. Oh, we have never given the slightest interference, with
one exception, Argentina, and that exception—I guess this is all right
on the record.
The CHAIRMAN". Yes.

Mr. WHITE. The reason for that has been political, not economic.
Senator TAFT. I understand that. I understood you discouraged it.
Mr. WHITE. YOU are quite correct, Senator. For political reasons.
Senator TAFT. Just one more question. Lord Keynes said:
Not merely as a feature of the transition, but as a permanent arrangement the

plan accords to every member government the expressed right to control all
capital movements. What used to be a heresy is now endorsed as orthodox.
In my own judgment, countries which avail themselves of this right may find
it necessary to scrutinize all transactions, so as to prevent evasion of capital
regulations. Provided that the innocent, current transactions are let through,
there is nothing in the plan to prevent this. In fact, it is encouraged.

Mr. WHITE. Correct. As you know, those countries have those
regulations right now.
Senator TAFT. I notice in sections 8 and 9 of the bill you provide
that whenever a request is made by the fund to the United States
as a member to furnish data under article VIII, section 5, the President may, through any agency he may designate, require any person
to furnish such information as the President may determine to be
essential to comply with such request. The President may then—if
the person hasn't given any information relating to any foreign transaction, he may be put in jail or subpena may be issued, and so forth. Of
course, those are provisions for secrecy, but it seems to me we are
saying, in effect, in this fund we are going to control all foreign
exchange transactions and give the President complete power to require any information from anybody about any transaction having to
do with foreign trade.
Mr. WHITE. NO, Senator; that was not our intention, nor do I
think that anything in the act would justify that conclusion.

tial or not.



BRETTON WOODS AGREEMENTS ACT

209

Mr. WHITE. If your committee is interested in that—and they
may well be, Mr. Chairman—with your permission, if it is agreeable
to Senator Taft, I would like to have one of our able lawyers discuss
the implications and meaning of that section.
Senator TAFT. We might do that this afternoon. May I ask to
have inserted in the record the address of Lord Keynes to the House
of Lords on May 23, 1944, to which I have referred a number of
times, and I think it would be wise to have it on the record.
Mr. WHITE. And would also be a compliment to Lord Keynes.
Senator TAFT. This is a photostatic copy of the House of Lords
record.
The CHAIRMAN. Very well.
Mr. WHITE. What is the date of that ?
Senator TAFT. May 23, 1944.
(The document referred to is as follows:)
ADDRESS OF LORD KEYNES BEFORE THE HOUSE OF LORDS ON MAY 23, 1944

My Lords, it is almost exactly a year since the proposals for a Clearing Union
were discussed in your Lordship's House. I hope to persuade your Lordships that
the year has not been ill-spent. There were, it is true, certain features of elegance,
clarity, and logic in the Clearing Union plan which have disappeared. And this,
by me at least, is to be much regretted. As a result, however, there is no longer
any need for a new-fangled international monetary unit. Your Lordships will
remember how little any of us liked the names proposed—bancor, unitas, dolphin,
bezant, daric, and heaven knows what. Some of your Lordships were good enough
to join in the search for something better. I recall a story of a country parish
in the last century where they were accustomed to give their children Biblical
names—Amos, Ezekiel, Obediah, and so forth. Needing a name for a dog, after
a long and vain search of the Scriptures they called the dog "Moreover." We
hit no such happy solution, with the result that it has been the dog that died. The
loss of the dog we need not too much regret, though I still think that it was a
more thoroughbred animal than what has now come out from a mixed marriage of
ideas. Yet, perhaps, as sometimes occurs, this dog of mixed origin is a sturdier and
more serviceable animal and will prove not less loyal and faithful to the purposes
for which it has been bred.
I commend the new plan to your Lordships as being, in some important respects
(to which I will return later), a considerable improvement on either of its parents.
I like this new plan and I believe that it will work to our advantage. Your
Lordships will not wish me to enter into too much technical detail. I can occupy
the time available by examining the major benefits this country may hope to gain
from the plan, and whether there are adequate safeguards against possible disadvantages. We shall emerge from this war, having wone a more solid victory
over our enemies, a more enduring friendship from our allieSj and a deeper
respect from the world at large, than perhaps at any time in our history. The
victory, the friendship, and the respect will have been won, because, in spite of
faint-hearted preparations, we have sacrificed every precaution for the future.in
the interests of immediate strength with a fanatical single-mindedness which has
had few parallels. But the full price of this has still to be paid. I wish that this
was more generally appreciated in the country than it is. In thus waging the
war without counting the ultimate cost we—and we alone of the United Nations—
have burdened ourselves with a weight of deferred indebtedness to other countries
beneath which we shall stagger. We have already given to the common cause
all, and more than all, that we can afford. It follows that we must examine any
financial plan to make sure that it will help us to carry our burdens and not add
to them. No one is more deeply convinced of this than I am. I make no complaint, therefore, that those to whom the details of the scheme are new and difficult, should scrutinize them with anxious concern.
What, then, are these major advantages that I hope from the plan to the
advantage of this country? First, it is clearly recognized and agreed that, during
the postwar transitional period of uncertain duration, we are entitled to retain any
of those wartime restrictions, and special arrangements with the sterling
area and others which are helpful to us, without being open to the charge of acting



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BRETTON WOODS AGREEMENTS ACT

contrary to any general engagements into which we have entered. Having this
assurance, we can make our plans for the most difficult days which will follow the
war, knowing where we stand and without risk of giving grounds of offense. This
is a .great gain—and one of the respects in which the new plan is much superior
to either of its predecessors, which did not clearly set forth any similar safeguards.
Second, when this period is over and we are again strong enough to live year
hy year on our own resources, we can look forward to trading in a world of
national currencies which are interconvertible. For a great commercial Nation
like ourselves this is indispensable for full prosperity. Sterling itself, in due
course, must obviously become, once again, generally convertible. For, without
this, London must necessarily lose its international position, and the arrangements in particular of the sterling area would fall to pieces. To suppose that
a system of bi-lateral and barter agreements, with no one who owns sterling
knowing just what he can do with it—to suppose that this is the best way of
encouraging the dominions to center their financial systems on London, seems
to me pretty near frenzy. As a technique of little Englandism, adopted as a
last resort when all else has failed us, with this small country driven to autarchy,
keeping itself to itself in a harsh and unfriendly world, it might make more
sense. But those who talk this way, in the expectation that the rest of the Commonwealth will throw in their lot on these lines and cut their free commercial
relations with the rest of the world, can have very little idea how this Empire has
grown or by what means it can be sustained.
So far from an international plan endangering the long tradition, by which most
Empire countries, and many other countries, too. have centered their financial
systems in London, the plan is, in my judgment, an indispensable means of maintaining this tradition. With our own resources so greatly impaired and encumbered, it is only if sterling is firmly placed in an international setting that
the necessary confidence in it can be sustained. Indeed, even during the transitional period, it will be our policy, I hope, steadily to develop the field within
which sterling is freely available as rapidly as we can manage. Now, if our own
goal is, as it surely must be, the general interconvertibility of sterling with other
currencies, it must obviously be to our trading advantage that the same obtains
elsewhere, so that we* can sell our exports in one country and freely spend the
proceeds in any other. It is a great gain to us, in particular, that other countries
in the world should agree to refrain from those discriminatory exchange practices which we ourselves have never adopted in times of peace but from which in
the recent past our traders have suffered greatly at the hands of others. My
noble friend, Lord Addison, has asked whether such an arrangement could be
operated in such a way that certain markets might be closed to British exports.
I can firmly assure him that one of the monetary proposals will do so, provided
that if we find ourselves with currencies in a foreign country which we do not
choose to spend in that country, we can then freely remit them somewhere else to
buy goods in another country. There is no compulsion on us, and if we choose to
come to a particular bargain in the country where we have resources, then that is
entirely at our discretion.
Third, the wheels of trade are to be oiled by what is, in effect, a great addition
to the world's stock of monetary reserves, distributed, moreover, in a reasonable
way. The quotas are not so large as under the Clearing Union, and Lord Addison
drew attention to that. But they are substantial and can be increased subsequently if the need is shown. The aggregate for the world is put provisionally
at £2,500,000,000. Our own share of this—for ourselves and the Crown Colonies
which, I may mention, are treated for all purposes as a part of the British monetary system (in itself a useful acknowledgment)—is £325,000,000, a sum which
may easily double, or more than double, the reserves which we shall otherwise
hold at the end of the transitional period. The separate quotas of the rest of
the sterling area will make a further large addition to this. Who is so confident
of the future that he will wish to throw away so comfortable a supplementary
aid in time of trouble? Do the critics think it preferable, if the winds of the
trade cycle blow, to diminish our demand for imports by increasing unemployment at home, rather than meet the emergency out of this fund which will be
expressly provided for such temporary purposes?
I emphasize that such is the purpose of the quotas. They are not intended as
daily food for us or any other country to live upon during the reconstruction or
afterwards. Provision for that belongs to another chapter of international cooperation, upon which we shall embark shortly unless you discourage us unduly
about this one. The quotas for drawing on the fund's resources are an iron
ration to tide over temporary emergencies of one kind or another. Perhaps this



BRETTON WOODS AGREEMENTS ACT

211

is the best reply I can make to Lord Addison's doubts whether our quota is large
enough. It is obviously not large enough for us to live upon during the reconstruction period. But this is not its purpose. Pending further experience, it
is, in my judgment, large enough for the purposes for which it is intended.
There is another advantage to which I would draw your Lordships' special
attention. A proper share of responsibility for maintaining equilibrium in the
balance of international payments is squarely placed on the creditor countries.
This is one of the major improvements in the new plan. The Americans, who
are the most likely to be affected by this, have, of their own free will and honest
purpose, offered us a far-reaching formula of protection against a recurrence of
the main cause of deflation during the interwar years, namely, the draining of
reserves out of the rest of the world to pay a country which wras obstinately
borrowing and exporting on a scale immensely greater than it was lending and
importing. Under clause VI of the plan a country engages itself, in effect, to
prevent such a situation from arising again, by promising, should it fail, to
release other countries from any obligation to take its exports, or, if taken, to
pay for them. I cannot imagine that this sanction would ever be allowed to
come into effect. If by no other means, than by lending, the creditor country
will always have to find a way to square the account on imperative grounds of
its own self-interest. For it will no longer be entitled to square the account
by squeezing gold out of the rest of us. Here we have a voluntary undertaking,
genuinely offered in the spirit both of a good neighbor and, I should add, of
enlightened self-interest, not to allow a repetition of a chain of events which
between the wars did more than any other single factor to destroy the world's
economic balance and to prepare a seedbed for foul growths. This is a tremendous extension of international cooperation to good ends. I pray your Lordships to pay heed to its importance.
Fifth, the plan sets up an international institution with substantial rights and
duties to preserve orderly arrangements in matters such as exchange rates which
are two-ended and affect both parties alike, which can also serve as a place of regular discussion between responsible authorities to find ways to escape those many
unforeseeable dangers which the future holds. The noble lord, Lord Addison, asks
how the fund is to be managed. Admittedly, this is not yet worked out in the
necessary detail and it was right that he should stress the point. But three
points which may help him are fairly clear. This is an organization between
governments, in which central banks only appear as the instrument and agent of
their government. The voting power of the British Commonwealth and that of
the United States are expected to be approximately equal. The management will
be in three tiers, a body of expert, whole-time officials who will be responsible
for the routine; a small board of management which will make all decisions of
policy subject to any overriding instructions from the assembly; an assembly of
all the member governments, meeting less often and retaining a supervisory,
but not an executive, control. That is perhaps even a little better than appears.
Here are five advantages of major importance. The proposals go far beyond
what, even a short time ago, anyone could have conceived of as a possible basis
of general international agreement. What alternative is open to us which gives
comparable aid, or better, more hopeful opportunities for the future? I have
considerable confidence that something very like this plan will be in fact adopted,
if only on account of the plain demerits of the alternative of rejection. You can
talk against this plan, so long as it is a matter of talking—saying in the same
breath that it goes too far and that it does not go far enough; that is to rigid
to be safe and that it is too lose to be worth anything. But it would require
great foolhardiness to reject it, much more foolhardiness than is to be found in
this wise, intuitive country.
Therefore, for these manifold and substantial benefits I commend the monetary
proposals to your lordships. Nevertheless, before you will give them your confidence, you will-wish to consider whether, in return, we are surrendering anything which is vital for the ordering of our domestic affairs in the manner we
intend for the future. My lords, the experience of the years before the war has
led most of us, though some of us late in the day, to certain firm conclusions.
Three, in particular, are highly relevant to this discussion. We are determined
that in future the external value of sterling shall conform to its internal value
as set by our own domestic policies and not the other way round. Secondly, we
intend to retain control of our domestic rate of interest, so that we can keep it
as low as suits our own purposes, without interference from the ebb and flow of
international capital movements or flights of hot money. Thirdly, whilst we
intend to prevent inflation at home, we will not accept deflation at the dictate of




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influences from outside. In other words, we abjure the instruments of bank
rate and credit contraction operating through the increase of unemployment as
a means of forcing our domestic economy into line with external factors.
Have those responsible for the monetary proposals been sufficiently careful to
preserve these principles from the possibility of interference? I hope your lordships will trust me not to have turned my back on all I have fought for. To
establish those three principles which I have just stated has been my main task
for the last 20 years. Sometimes almost alone, in popular articles in the press,
in pamphlets, in dozens of letters to the Times, in textbooks, in enormous and
obscure treatises I have spent my strength to persuade my countrymen and the
world at large to change their traditional doctrines and, by taking better thought,
to remove the curse of unemployment. Was it not I, when many of today's
iconoclasts were still worshippers of the calf, who wrote that "Gold is a barbarous relic" ? Am I so faithless, so forgetful, so senile that at the very moment
of the triumph of these ideas when, with gathering momentum, governments, Parliaments, banks, the press, the public, and even economists have at last accepted
the new doctrines, I go off to help forge new chains to hold us fast in the old
dungeon ? I trust, my lords, that you will not believe it.
Let me take first the less prominent of the two issues which arise in this connection. Namely, our power to control the domestic rate of interest so as to
secure a cheap money. Not merely as a feature of the transition, but as a permanent arrangement, the plan accords to every member Government the explicit
right to control all capital movements. What used to be a heresy is now endorsed
as orthodox. In my own judgment, countries which avail themselves of this
right may find it necessary to scrutinize all transactions, so as to prevent evasion
of capital regulations. Provided that the innocent, current transactions are let
through, there is nothing in the plan to prevent this. In fact, it is encouraged.
It follows that our right to control the domestic capital market is secured on
firmer foundations than ever before, and is formally accepted as a proper part
of agreed international arrangements.
The question, however, which has recently been v given chief prominence is
whether we are in any sense returning to the disabilities of the former gold
standard, relief from which we' have rightly learned to prize so highly. If I
have any authority to pronounce on which is and which is not the essence and
meaning of a gold standard, I should say that this plan is the exact opposite of
it. The plan in its relation to gold is, indeed, very close to proposals which I
advocated in vain as the right alternative, when I was bitterly opposing this
country's return to gold. The gold standard, as I understand it, means a system
under which the external value of a national currency is rigidly tied to a fixed
quantity of gold which can only honorably be broken' under force majeure; and
it involves a financial policy which compels the internal value of the domestic
currency to conform to this external value as fixed in terms of gold. On the
other hand, the use of gold merely as a convenient common denominator by means
of which the relative values of national currencies—these being free to change—
are expressed from time to time, is obviously quite another matter.
My noble friend, Lord Addison, asks who fixes the value of gold. If he means,
as I assume he does, the sterling value of gold, it is we, ourselves, who fix it
initially in consultation with the fund; and this value is subject to change at any
time on our initiative, changes in excess of 10 percent requiring the approval
of the fund, which must not withhold approval if our domestic equilibrium
requires it. There must be some price of gold; and so long as gold is used
as a monetary reserve it is most advisable that the current rates of exchange
and the relative values of gold in different currencies should correspond. The
only alternative to this would be the complete demonetization of gold. I am not
aware that anyone has proposed that. For it is only common sense as things are
today to continue to make use of gold and its prestige as a means of settling
international accounts. To demonetize gold would obviously be highly objectionable to the British Commonwealth and to Russia as the main producers, and
to the United States and the western allies as the main holders of it. Surely no
one disputes that. On the other hand, in this country we have already dethroned
gold as the fixed standard of value. The plan not merely confirms the dethronement but approves it by expressly providing that it is the duty of the fund to
alter the gold value of any currency if it is shown that this will be serviceable
to equilibrium.
In fact, the plan introduces in this respect an epoch-making innovation in an
international instrument, the object of which is to lay down sound and orthodox
principles, for instead of maintaining the principle that the internal value of a




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213

national currency should conform to a prescribed de jure external value, it provides that its external value should be altered if necessary so as to conform to
whatever de facto internal value results from domestic policies, which themselves
shall be immune from criticism by the fund. Indeed, it is made the duty of the
fund to approve changes which will have this effect. That is why I say that
these, proposals are the exact opposite of the gold standard. They lay down
by international agreement the essence of the new doctrine, far removed from
the old orthodoxy. If they do so in terms as inoffensive as possible to the former
faith, need we complain?
No, my Lords, in recommending these proposals I do not blot a page already
written. I am trying to help write a new page. Public opinion is now converted
to a new model, and I believe a much improved model, of domestic policy. That
battle is all but won. Yet a not less difficult task still remains, namely, to organize
an international setting within which the new domestic policies can occupy a
comfortable place. Therefore, it is above all as providing an international
framework for the new ideas and the new techniques associated with the policy
of full employment that these proposals are not least to be welcomed.
Last week my noble friend, Lord Bennett, asked what assumptions the experts
might be making about other phases of international agreement. I do not believe
that the soundness of these foundations depends very much on the details of the
superstructure. If the rest of the issues to be discussed are wisely settled, the
task of the monetary fund will be rendered easier. But if we gain less assistance
from other measures that we now hope, an agreed machinery of adjustment on
the monetary side will be all the more necessary. I am certain that this is not
a case of putting the cart before the horse. I think it most unlikely that fuller
knowledge about future commercial policy would in itself make it necessary to
alter any clause whatever in the proposals now before your Lordships' House.
But if the noble Viscount meant that these proposals need supplementing in other
directions, no one could agree with him more than I do. In particular, it is
urgent that we should seek agreement about setting up an international investment institution to provide funds for reconstruction and afterward. It is precisely
because there is so much to do in the way of international collaboration in the
economic field that it would be so disastrous to discourage this first attempt, or to
meet it in a carping, suspicious, or cynical mood.
The noble Lord, Lord Addison, has called the attention of your Lordships to
the striking statement made by Mr. Hull in connection with the National
Foreign Trade Week in the United States, and I am very glad that he did so.
This statement is important as showing that the policy of the United States
Administration on various issues of political and economic preparation forms
a connected whole. I am certain that the people of this country are of the same
mind as Mr. Hull, and I have complete confidence that he on his side will seek
to implement the details with disinterestedness and generosity. If the experts
of the American and British Treasuries have pursued the monetary discussions
with more ardor, with a clearer purpose and, I think, with more success so far
than has yet proved possible with other associated matters, need we restrain
them? If, however, there is a general feeling, as I think that there is, that
discussion on other matter* should be expedited, so that we may have a complete picture before us, I hope that your Lordships will enforce this conclusion
in no uncertain terms. I myself have never supposed that in the final outcome
the monetary proposals should stand by themselves.
It is on this note of emphasizing the importance of furthering all genuine
efforts directed towad international agreement in the economic field that I
should wish to end my contribution to this debate. The proposals which are
before your Lordships are the result of the collaboration of many minds and
the fruit of the collective wisdom of the experts of many nations. I have spent
many days and weeks in the past year in the company of experts of this country,
of the Dominions, of our European Allies, and of the United States; and, in the
light of some past experience I affirm that these discussions have been without
exception a model of what such gatherings should be—objective, understanding,
without waste of time or expense of temper. I dare to speak for the much
abused so-called experts. I even venture sometimes to prefer them, without
intending any disrespect, to politicians. The common love of truth, bred of a
scientific habit of mind, is the closest of bonds between the representatives of
divers nations.
I wish I could draw back the veil of anomymity and give their due to the
individuals of the most notable group with which I have ever been associated,




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BRETTON WOODS AGREEMENTS ACT

covering half the nations of the world, who from prolonged and difficult consultations, each with their own interests to protect, have emerged, as we all of
us know and feel in our hearts, a hand of brothers. I should like to pay a
particular tribute to the representatives of the United States Treasury and the
State Department and the Federal Reserve Board in Washington, whose genuine
and ready consideration for the difficulties of others, and whose idealistic and
unflagging pursuit of a better international order, made possible so great a
measure of agreement. I at any rate have come out from a year thus spent
greatly encouraged, encouraged beyond all previous hope and expectation, about
the possibility of just and honorable and practical economic arrangements
between nations.
Do not discourage us. Perhaps we are laying the first brick, though it may be
a colorless one, in a great edifice. If, indeed, it is our purpose to draw back
from international cooperation and to pursue an altogether different order of
ideas, the sooner that this is made clear the better; but that, I believe, is the
policy of only a small minority, and for my part I am convinced that we cannot,
on those terms, remain a great power and the mother of a commonwealth. If,
on the other hand, such is not our purpose, let us clear our minds of excessive
doubts and suspicions and go forward cautiously by all means, but with the
intention of reaching agreement.

Senator TOBEY. Has the Government removed the ban on gold
production yet ?
Mr. WHITE. I understand they are just in the process of doing so.
I don't know how far they have gone, but the restrictions have been
in the use of machinery for gold mining and the use of material.
Do you know, Ed ?
(Conferring with assistant.)
The WPB is lifting them.
Senator TAFT. Mr. Chairman, I have asked tomorrow morning to
have representatives of the New York State Bankers Association
appear.
The CHAIRMAN. We are going on with the witnesses tomorrow at
10:30.
Gentlemen, I hope we will all be over at the Capitol Building at
3 o'clock in the District of Columbia room, 3 o'clock today.
(The following agreement was later submitted for the record:)
PEOTOCOL BETWEEN THE GOVERNMENT OF THE UNITED KINGDOM AND THE BELGIAN
GOVERNMENT REGARDING MUTUAL AID

London, 22nd August 1944
The Government of the United Kingdom of Great ^Britain and Northern Ireland
and the Belgian Government,
Desiring (i) to make fresh 'arrangements for the attribution of expenditure
incurred in the application of the Agreement concluded between the two Governments in London on the 4th June 1942, regarding the organisation and employment of the Belgian Armed Forces, in substitution of the provisions of Article 6
of the aforesaid Agreement, and (ii) in accordance with Article 16 of the agreement representing the arrangements for civil administration and jurisdiction in
Belgian territory liberated by an Allied Expeditionary Force, concluded between
the Government of the United Kingdom and the Belgian Government on the 16th
May 1944, to settle the terms on which funds shall be supplied by the Belgian
Government to the Allied Expeditionary Force operating in Metropolitan Belgian
territory, and to provide for the attribution of expenditure arising out of the
grant of aid by the Belgian Government to the Government of the United Kingdom of Great Britain and Northern Ireland,
Have accordingly agreed as follows:
ARTICLE 1

(i) The Government of the United Kingdom shall not as from the effective
date of this Protocol claim reimbursement of the cost of the equipment (including the supply of war material) and of the maintenance by departments or agencies



BRETTON WOODS AGREEMENTS ACT

215

of the Government of the United Kingdom of the Belgian Armed Forces (comprising land, sea and air forces), but costs relative to goods delivered or services
rendered before the effective date of this agreement in respect of such equipment and maintenance shall in the absence of any special arrangements to the
contrary be reimbursed by the Belgian Government to the Government of the
United Kingdom, in accordance with the Agreement of the 4th June 1942.
(ii) After the termination of this Protocol, the Government of the United
Kingdom may require the return of any of the articles supplied under this Article
which have not been lost, destroyed, or consumed.
ARTICLE 2

(i) The costs to which the provisions of Article 1 (i) of this Protocol relate
are the costs of all types of supplies, stores, equipment and material, and also all
services and facilities required for the equipment and maintenance of the Belgian
Armed Forces which can most effectively be provided and are provided directly
by departments or agencies of the Government of the United Kingdom, including
the cost of arrangements for, training and transport and of the necessary administrative maintenance and medical services incurred by the aforesaid departments
or agencies for the benefit of the Belgian Armed Forces.
(ii) The provisions of Article 1 (i) of the Protocol shall not apply, to the
pay, allowances, pensions and any other emoluments of members of the Belgian
Armed Forces. They shall also not apply to stores, supplies, services and facilities specially furnished to the Belgian Armed Forces, which are not intended
for their own use but for civil purposes.
ARTICLE 3

(i) The Belgian Government shall as from the effective date of this Protocol
not claim reimbursement of the costs of the reciprocal aid which they are able
to supply to the Government of the United Kingdom.
(ii) After the termination of this Protocol, the Belgian Government may
require the return of any of the articles supplied under this Article which have
not been lost, destroyed or consumed.
ARTICLE 4

(i) The costs to which the provisions of Article 3 (i) of this Protocol relate
are the costs of all stores, supplies, services and facilities required by the British
Armed Forces for military purposes and which can most effectively be procured
in Belgian Metropolitan Territory as well as the costs of civil affairs in Belgian
Metropolitan Territory. As far as possible the procurement in Belgian Metropolitan Territory shall be effected either directly by departments or agencies of
the Belgian Government or in accordance with specific agreements on the matter.
(ii) The provisions of Article 3 (i) of this Protocol shall not apply to the pay,
allowances, pensions and any other emoluments of members of the British Armed
Forces.
ARTICLE 5

The Belgian Government hereby agrees to place, either in notes or in the form
of credits, at the disposal of the British War Office such funds in Belgian currency as are required in Belgium and in Luxembourg by the British Armed Forces.
ARTICLE 6

A representative of the Banque Nationale de Belgique shall accompany the
liberating armies as part of the Belgian Liaison Mission.
ARTICLE 7

On the termination of this Protocol, the British War Office shall hand over
to the Belgian Government any such Belgian currency remaining in their possession, and the unused portion of any credits which may have been opened shall
be canceled.
ARTICLE 8

(i) Insofar as the funds mentioned in Article 5 are used for the procurement
on behalf of the British Armed Forces of stores, supplies, services and facilities



216

BRETTON WOODS AGREEMENTS ACT

and for civil affairs mentioned in Article 4 of this Protocol, no reimbursement
shall be made by the Government of the United Kingdom.
(ii) Insofar as such funds are used for the pay, allowances and other
emoluments of the British Armed Forces in Belgium and Luxembourg, the
Government of the United Kingdom shall place quarterly ,to the credit of the
Belgian Government in London the sterling equivalent of the sum so used calculated at the official rate of exchange current when the Belgian francs are
used.
ARTICLE 9

In order that the satisfaction of the local requirements of the British Armed
Forces may have the least possible disruptive effect on the economy of Belgium,
the British military authorities and the Belgian authorities will consult together,
whenever operations permit, as to the stores and supplies which British Army
procurement agencies and individual officers and men are permitted to obtain
locally. The British military authorities will place such restrictions as are
agreed to be necessary on purchases, whether by agencies or troops.
The Government of the United Kingdom undertake to replace, or to refund
in sterling the cost of any articles requisitioned or purchased with francs by
the British Armed Forces, which require replacement from abroad. This does
not apply to component parts or component material.
ARTICLE 11

The Government of the United Kingdom and the Belgian Government shall
consult together with regard to the detailed application of this Protocol. Likewise any difficulty which may arise as to the interpretation and application of
this Protocol, and any doubt which may arise as to the nature of the stores,
supplies, services and facilities covered by the provisions of Articles 1 (i) and (3)
(i) or as to the extent to which these stores, supplies, services and facilities
shall be furnished shall be resolved by consultation between the contracting
Governments.
AETICLE 12

The provisions of Articles 1 and 2 of this Protocol replace as from the
effective date of this Protocol the provisions of Article 6 of the aforesaid
agreement of the 4th June, 1942, insofar as concerns the costs to which Article
1 of this Protocol relates. The provisions of Article 6 of the agreement of the
4th June, 1942, shall, however, continue to apply in respect of any other costs
incurred by any department or agency of the Government of the United Kingdom
in connection with the application of that agreement.
ARTICLE 13

The effective date of this Protocol shall be the 1st June, 1944.
ARTICLE 14

This Protocol shall remain in force until six months after the general suspension
of hostilities with Germany, except that as from the date of the general suspension
of such hostilities the provisions of Article 2 shall only apply to the continued
maintenance of the then existing units or formations of Belgian Forces and of
personnel of those Forces serving with units or formations of the Forces of the
United Kingdom. Within two months of the general suspension of hostilities
with Germany the contracting Governments will consult together as regards the
arrangements to be made after the termination of the present Protocol.
In witness whereof the undersigned, duly authorized by their respective Governments, have signed the present Protocol and have affixed thereto their seals.
Done in London, in duplicate, on the 22nd day of August, 1944.
(L. S.)
(L. S.)

ANTHONY EDEN.
P. H. SPAAK.

AFTERNOON SESSION

(Whereupon, at 12 m., a recess was taken until 3 p. m., of the same
day.)
'in.
The committee reconvened at 3 p. m., upon the expiration of the
recess.



BRETTON WOODS AGREEMENTS ACT

217

STATEMENT OF HARRY D. WHITE, ASSISTANT SECRETARY OP THE
TREASURY—Resumed

The CHAIRMAN. We will continue the hearing. Dr. White, I think
Senator Taft has another question he wants to propound to you.
Mr. WHITE, I will do my best to answer it.
Senator TAFT. I was dealing with what is the meaning of article
XI. I had some difficulty understanding it. I have no intention
to suggest a criticism of it. That is the one with relation to nonmember countries.
The CHAIRMAN. What is the page number?
Senator TAFT. Page 21. How does that bind us? What are the
obligations under that article with relation to nonmember countries?
Mr. WHITE. There are three. The first one refers to an undertaking not to permit any transactions with nonmember countries or
with persons in nonmember territories which would be contrary to
the provisions of this agreement or the purposes of the fund. It is
to give the fund authority in rather broad terms to determine whether
transactions are being permitted between a member and a nonmember
country which are detrimental to the interests of the member
countries.
Senator TAFT. What could they be? If there is some nation that
is not in the fund why shouldn't we make any arrangements we think
we want to make? I don't understand the reason for that restriction.
Mr. WHITE. Well, it arose in this fashion: We didn't know what
the nonmember countries would be, and it might be possible for member countries to make arrangements with nonmember countries which
would have the effect of putting other member countries at a disadvantage. It was deemed desirable to have a broad clause in there
which would protect the member countries from any undertaking or
arrangement by a member country with nonmember countries. If
that paragraph were not in there, if that protective clause were not
there, there would be no protection that member countries would have
against the dealings of a member country with nonmember countries;
and since we don't know how many nonmember countries there may
be, if any, it was deemed desirable in general to have that protective
clause.
Senator TAFT. I don't understand what it is that you can do with a
nonmember that would upset the fund to the extent of letting the fund
tell us what kind of an arrangement we can make with a nonmember
country.
Mr. WHITE. Well, there is a certain type of exchange transaction—
Mr. Bernstein, would you want to explain a transaction that might
have that effect, as an example ?
Mr. BERNSTEIN. The purpose of that first provision, as Mr. White
indicates, is to prevent a country violating the purposes of the agreement by going into a nonmember country to do it. For example,
members are supposed to keep their currencies stable. Suppose the
exchange authorities of a country went to Switzerland and there sold
its currency at way below the levels that have been established under
the fund. That would have the effect of undermining the stability
of the currency which the agreement is intended to facilitate. So
this provision is designed to prevent the authorities of a country from



218

BRETTON WOODS AGREEMENTS ACT

going into a nonmember country and doing there what presumably the
fund does not permit.
Mr. WHITE. Suppose England sold sterling at a discount in this
nonmember country.
Senator TAFT. I don't see what difference it makes to them if they
sell sterling, if it is a nonmember country England doesn't have to
recognize them.
Mr. BERNSTEIN. It would give Switzerland sterling at a low rate
which would give an advantage to the British exporter to Switzerland.
Mr. WHITE. There are also other factors. The provision is a sort
of a catch-all protective clause rather than aimed at any particular
business transaction.
Senator TAFT. It is suggested to me that you are setting up this
fund board as kind of a regulator of the world, people who are nonmembers as well as members, or of members dealing with nonmembers.
Mr. WHITE. Well, the intent was rather the latter, so that there
would not be a loophole in the arrangements contemplated in the fund
such as would be created by business dealings of nonmember countries
over which the fund would have no control.
Senator BUTLER. HOW do you figure there will be any nonmembers ?
Mr. WHITE. Well, we don't know. For example, Germany ar^
Japan. It may be that Germany and Japan might constitute vert
serious competitors if they were outside the arrangements; they mighv
resort to all kinds of devices in a few years, and if they did that there
would be no way in which the fund could have control over them, and
this clause provides that. It would mean that they could do business
with member countries only on the basis of the principles that apply to
all member countries. Since there would be mostly member countries
that they would do business with it protects other members against any
possible action on the part of Germany and Japan. Then, we don't
know now what other countries might be nonmembers because none of
the neutrals was invited to the Conference, and none of the enemy
countries. That includes quite a list.
Senator BUTLER. IS there any provision in here that prevents the
resident of one country from trading automobiles to the resident of
another country if they want to ?
Mr. WHITE. Not by the usual methods of trade. I wouldn't think so.
Senator BUTLER. There has been lots of bartering.
Mr. WHITE. Oh, there could still be. Do you mean if somebody had
an automobile and wanted to swap it for something ?
Senator BUTLER. NO ; I mean shipload lots.
Mr. WHITE. It depends. If they did it through the kind of currency
devices which were employed in the 1930's, that would be excluded;
yes.
Senator TAFT. It has been suggested to me by someone that under
this agreement they could do away with the so-called sanitary regulations of the United States on beef from the Argentine and South
America. I could not "quite see how that could be done, but I thought I
would ask you the question. Could the fund in any way take the position that our sanitary laws against South American beef were unreasonable and were an evasion of the law ?
Mr: WHITE. I don't see how it could, Senator, because the position
we take ourselves with respect to that law is that it is a sanitary law



BRETTON WOODS AGREEMENTS ACT

219

and how the fund could take any position with respect to that is not
clear to me.
Senator TAFT. I couldn't think of any unless there was some claim
that the thing was being used as a subterfuge for discriminatory tariff
restrictions.
Mr. WHITE. I have heard that said in this country. I think Congress would not pay any attention to any statement of that kind and I
cannot see the fund stepping into an area of that kind. I imagine the
American representative would object.
Senator TAFT. I rather agree with you. I don't see how that could
be done.
Senator FULBRIGHT. They couldn't do it any more than they could
under these quotas that are set for reciprocal trade agreements. We
set quotas on certain things and the others we let in under a low tariff,
but I thought this was only relating to exchange.
Mr. WHITE. I think in all fairness, Senator Fulbright, that the fund
might say, for example, that the quotas are set so low—in other words,
you are allowing so few goods to go in that it is not permitting other
countries to sell enough goods and that would be the subject of a
report if dollars became scarce. They might say
Senator FULBRIGHT. DO you mean to say that is one of the reasons
for scarce currency ?
Mr. WHITE. That is right.
Senator FULBRIGHT. That would not mean we had to do anything
about it ?
Mr. WHITE. NO ; they could only do it if the dollar were a scarce
currency and that was really the c^use, but when you go into the determination of whether or not one of our laws regarding sanitation is in
fact a sanitary regulation, I think they would be ill advised to say anything like that and I would doubt very much if they would.
Senator TAFT. There might possibly be a dispute, but there would
not be much they could do about it.
Mr. WHITE. I think theat Congress would pay no attention to it.
Senator BUTLER. Would your general counsel want to say something
on that?
Mr. JOSEPH J. O'CONNELL, general counsel, Treasury Department.
I don't think I could add a great deal. I think in the first place
it would be highly improbable that the fund would consider taking
any such position, and if they did it is equally true they would be powerless to do anything other than make a report to this Government
and this Government would be free to take such action as it saw
fit.
Senator TAFT. Of course, we would be free, but if we didn't do something about the things that they recommended they could practically
put an end to our exports.
Senator MILLIKIN. Well, what are the disciplinary measures that the
fund can take against a country ?
Mr. WHITE. There aren't any they can take against us unless we
come to the fund for assistance, which we are not likely to do. If we
did come to the fund for assistance they could say,' "You can do
what you please. You are a sovereign power, but if you want to get
assistance it seems to us you will have to try to stop whatever is causing you to need assistance, because you are imposing a great burden
on the fund."
75673—45




15

220

BRETTON WOODS AGREEMENTS ACT

Senator MILLIKIN. SO that in that sense you could exercise rather
rigid powers in directions other than purely monetary directions?
Mr. WHITE. Not on us, and the only extent to which the fund
could impose it on other countries would be on countries that were
coming to the fund for assistance where the fund could definitely
show that the course such countries were pursuing was having adverse
consequences on that country and other countries.
Senator MILLIKIN. Let us assume that country X is preventing
imports of cattle through a fictitious claim of hoof and mouth disease,
and the fund suggests it is getting itself into a state of imbalance, I
believe you called it, through practices of this kind. Unless you quit,
you cannot come here for exchange.
Mr. WHITE. I hardly thing that would happen because any single
instance of that kind" would have very little effect on the total payments. I doubt very much whether that would be the situation that
the fund would consider. The kind of a situation which the fund
might consider would be that of a tariff policy which a country is
pursuing which was an important cause of keeping other countries in
imbalance. If the country were coming to the fund for assistance
then the fund might say to it, "You are pursuing a policy of too
freely subsidizing exports or making imports too cheap, or you are
pursuing an inflationary policy the result of which is making it impossible for you to sell goods abroad, or you have certain legislation
which is discouraging foreign capital from coming in and encouraging
the withdrawal of foreign capital. Because you are doing that you
find it necessary to come to the fund for a lot of exchange. • There is
nothing in the picture that leads us to believe that your situation is
going to improve. You cannot keep coming to the fund indefinitely,
so you had better make some changes. We would be glad to suggest
changes, but unless there are some changes made in your program you
cannot have further access to the fund, because the fund's help isn't
doing you any good; our help is not correcting the situation which is
responsible for it and our giving you time is not helping you because
}Tou are not utilizing the time to eliminate the cause."
The fund could say that.
Senator TAFT. Mr. White, I wanted to get clear the exact relation
of these special notes or I O IPs, or whatever they are that are provided
for in the fund. If the fund takes from us say, a billion dollars in
I O U's, what do we get back from the fund ?
Mr. WHITE. If the fund takes from us—the United States?
Senator TAFT. Yes. There is a provision for substituting
Mr. WHITE. That is right. Page 28? Is that what you refer to?
No; it is page 4, section 5—that is article III, section 5, substitution
of securities for currency.
Senator TAFT. Yes. You say, "The fund shall accept from any
member in place of any part of the member's currency which in the
judgment of the fund is not needed for its operations, notes, or similar
obligations issued by the member or the depository designated by the
member under article X I I I , section 2, which shall be nonnegotiable,
noninterest bearing, and payable at their par value on demand by
crediting the account of the fund in the designated depository." What
do you get back, if we put that in ? Do you get gold back, or currency
only ?



BRETTON WOODS AGREEMENTS ACT

221

Mr. WHITE. The United States, having to put in two billion and
three-quarters, puts in some gold, 600 millions of gold, and 2,100 millions in a deposit with the Federal Reserve Bank of New York in the
name of the fund, if that were the depository that was selected. Instead of raising that amount of dollars through loans and paying
interest on it we substitute Treasury non-interest-bearing, nonnegotiable I O IPs in the depository. They would remain in that form
with the fund, until in the judgment of the fund, it needed some more
dollars, in which case some of those notes w^ould be withdrawn and we
would put dollars in in their place.
Senator TAFT. Those notes are not in addition to the total fund
stated in the provisions?
Mr. WHITE. NO. The reason for that provision was to make it unnecessary for a country whose currency is not in imminent demand
to have to borrow and pay interest. When the fund wants currency
it will be there, but when it is not needed we didn't think we wanted
to pay interest. Other countries didn't either, so we have provided for
this substitute.
Senator TAFT. Of course, if you have to sell that in the world, it is
much harder to sell than currency.
Mr. WHITE. Well, we do not intend to sell it in the world. What
you would attempt to sell would not be the I O IPs. It would be the
balances to which the I O U's would be converted, the currency which
they put on deposit.
Senator TAFT. These notes are authorized on page 9 of the bill.
For the purpose of keeping to a minimum the cost to the United States of
participation in the fund and the bank, the Secretary of the Treasury * * *
is authorized and directed to issue special notes of the United States from time
to time at par and to deliver such notes to the fund and the b'ank in exchange for
dollars to the extent permitted by the respective articles of agreement. The
special notes provided for in this subsection shall be issued under the authority
and subject to the provisions of the Second Liberty Bond Act, as amended—

and so forth. Is that authority in addition to the right to issue
$4,125,000,000, at the top of page 9?
Mr. WHITE. Perhaps Mr. Luxford can answer that.
STATEMENT OF ANSEL P. LTJXF0RD, ASSISTANT TO THE SECRETARY, TREASURY DEPARTMENT, WASHINGTON, D. C.
Mr. LUXFORD. The way that works is that our obligation under the
fund agreement is to pay the total amount into the fund on the day
that the fund demands it. That is, when we accept membership, when
the fund gets ready for operations, our obligation is to pay 600 million
in gold plus the balance in a dollar deposit at the New York Federal
Eeserve Bank or whatever Federal Reserve bank you want to select,
and to pay the whole thing in cash on the line.
Then the United States has the privilege under this section 5 which
you have referred to of article III, of saying, "You have no need for
that amount of currency at this time so we are going to substitute
demand notes, non-interest-bearing notes, for such portion of this
dollar deposit as is not necessary for your current operations." You
have already paid down the cash authorized under section 8 (b) of the
bill. Then under section 8 (c) you have authority to get the cash back
and pay in lieu of it, demand notes until such time as the fund needs



222

BRETTON WOODS AGREEMENTS ACT

further dollars, at which point they would hand us some of the notes
and say, "Give us back dollars," and we in turn would go back and
use our authority under section 8 (b) of the bill. But the limit specified of $4,125,000,000 is the ceiling.
Senator TAFT. That is the ceiling which includes (c) ?
Mr. LUXFORD. That is right. There is no further burden
Senator TAFT. SO that you may authorize these things under the
Second Liberty Loan Act again ?
Mr. LUXFORD. That is right.
Senator TAFT. That it is cumulative is not your interpretation of it.
Mr. LUXFORD. NO.
Senator TAFT. YOU

think that is perfectly clear and doesn't need
any amendment to make it clear?
Mr. LUXFORD. NO. We went through that very thoroughly with the
House Legislative Council.
Senator TAFT. W R a t about the business of borrowing money?
The fund is authorized to borrow money ?
Mr. LUXFORD. Yes.
Senator TAFT. Where is that?
Mr. WHITE. Article VII.
The CHAIRMAN. Where?
Mr. LUXFORD. Article VII, section
Senator TAFT. The question that

2, page 14.
was asked me was whether you
can go out and borrow—the fund could go out and borrow from the
Federal Keserve banks. In the first place, whether the Federal Reserve banks have power to loan the fund money under their general
powers.
Mr. LUXFORD. We have discussed that informally with the Federal
Reserve Board. They are doubtful they have authority, but I call
your attention to the fact that under the act which is before you for
consideration there is an express limitation on any borrowing of funds
from the United States without the approval of Congress.
Senator TAFT. Where is that in the bill ?
Mr. LUXFORD. Section V, page 7. Certain acts not to be taken without authorization. Now, if you will look at item (e) [reading] :
Make any loan to the fund or the bank
Senator TAFT. That is all right-as far as it goes.
Mr. LUXFORD continuing:
Shall on behalf of the United States
•
Senator TAFT. But the Federal Keserve Board is

not necessarily on
behalf of the United States, is it?
Mr. LUXFORD. I am not sure whether it is or it isn't. I think you
are better judges of that than I am, and I wouldn't want to speak for
the Federal Reserve on that.
Senator TAFT. The stock is owned by the banks, not the Government. Presumably there would be no prohibition here against private
banks or Federal Reserve banks making loans.
Mr. LUXFORD. I think the difficulty in their mind is that they do not
have authority under their own act.
Senator TAFT. I think there is a question about that, but I wondered without any action by Congress they could step out and borrow
money in the United States for dollars.



BRETTON WOODS AGREEMENTS ACT

223

Mr. LUXFORD. That is not prohibited. With our permission they
may.
Senator TAFT. Well, where is your permission ?
Mr. LUXFORD. In the articles of agreement, that same section we
were just reading, section 2 (i) [reading]:
The fund may, if it deems such action appropriate to replenish its holdings
of any member's currency, purpose to the member that, on terms and conditions
agreed between the fund and the member, the latter lend its currency to the
fund or that, with the approval of the member, the fund borrow such currency
from some other source either within or outside the territories of the member,
but no member shall be under any obligation to make such loans to the fund or
to approve the borrowing of its currency by the fund from any other source.

The United States has full power over the making of a loan, whether
it is from the United States or from any person within the United
States.
Senator TAFT. What occurred to me was you might have an amendment to section 5 that would make it clear that they could not borrow
at all in the United States, borrow dollars, without the approval of
Congress. You say that the Government cannot make any loans to
them without the approval of Congress.
Mr. LUXFORD. That is right.
Senator TAFT. It might be provided that this power to borrow dollars around the world could not be done without the approval of
Congress. I haven't followed it through. I am just asking whether
that would be a reasonable provision.
Mr. LUXFORD. This provision is quite in harmony with the same provision, or a similar provision, in the bank where you leave it to the
Government of the United States to decide whether or not dollars
may be borrowed. Just as in the bank you have no requirement that
Congress approve each loan. After all, the bank is in the business
of borrowing money.
Senator TAFT. Would it be your idea we are committing ourselves
up to $2,750,000,000 and no more, and if we are going to have more
dollars put in there by anybody, the Federal Reserve banks, or anybody else, that Congress ought to authorize the limit ?
Mr. LUXFORD. That is clear from the agreement itself, that the
United States has the absolute say-so on whether there is one further
dollar loaned to the fund. That is the provision I have just read
to you. No member shall be under any obligation to make such
loans to the fund or to approve the borrowing of its currency by the
fund from any other sources. I don't see how you could say it more
explicitly.
Senator TAFT. I don't see how you could say it more explicitly except to say that the American member of the Board can authorize it.
Mr. LUXFORD. NO ; he has to do that with the Council, if you will
look at the language in section 4, page 6 , line 18. That is the National Advisory Council on International Monetary and Financial
Problems. That Council is composed of the Secretary of the Treasury
as chairman, the Secretary of State, the Secretary of Commerce, the
Chairman of the Board of Governors of the Federal Reserve System,
and the Chairman of the Board of Trustees of the Export-Import
Bank of Washington.
Now, they have the power to give the consent of the United States
when there is any question of borrowing dollars and I will give you



224

BRETTON WOODS AGREEMENTS ACT

the precise provision that covers it. If you will look on page 4, subdivision 4, line 18.
Senator TAFT (reading) :
Whenever under the articles of agreements——

Mr. LUXFORD. That is it.
Senator TAFT (reading):
Whenever, under the articles of agreement of the fund of the articles of agreement of the bank, the. approval, consent, or agreement of the United States is
required before an act may be done by the respective institutions, the decision
as to whether such approval, consent or agreement, shall be given or refused
shall (to the extent such decision is not prohibited by section 5 of this act)
be made by the Council, under the general direction of the President.
Mr. LUXFORD. That is right. In other words, that power is not

vested in our Executive Director, but in the United States. The power
is vested in this Council.
Senator TAFT. I see. But not in Congress.
Mr. LUXFORD. That is right.
Mr. WHITE. Not in Congress except with respect to Government
loans.
Senator TAFT. However, you have investigated the question of
whether the Federal Reserve bank had power to make these loans ?
Mr. LUXFORD. Yes.

Senator TAFT. Additional loans ?
Mr. LUXFORD. That is right.
Senator TAFT. Mr. White, the House bill has two provisions here,
section 13 and 14:
The Governor and Executive Director of the bank appointed by the United
States are thereby directed to obtain promptly an official interpretation by the
Bank as to its authority to make or guarantee loans for programs of economic
reconstruction and the reconstruction of monetary systems, including longterm stabilization loans.

This is the bank—
If the bank does not interpret its powers to include the making or guaranteeing of such loans, the Governor of the bank representing the United States is
hereby directed to propose promptly and support an amendment to the articles
of agreement for the purpose of explicitly authorizing the bank, after consultation with the fund, to make or guarantee such loans. The President is hereby
authorized and directed to accept an amendment to that effect on behalf of the
United States.

If that is a valid amendment, why don't we make it, instead of proposing it as a minority member which proposal may be turned down
by the Directors of the bank ?
Mr. WHITE. That has quite a history. You will remember it was
the view of the Treasury as stated before the House committee, that
the bank already has that power, but there were others who felt it was
not sufficiently explicit and so this amendment was incorporated.
There is no doubt in our minds that (a) the powers exist and (&) the
amendment would be acceptable to all countries.
The reason why we felt it most unwise to incorporate it as an amendment is that once we amended the agreement then we would open the
door to amendments to the agreement by all the countries. I t was felt




BRETTON WOODS AGREEMENTS ACT

225

that that process would cause delay beyond the point where you could
get it through this year. If we would put in that amendment, then
some other country would put in another amendment and so forth and
so forth. We wanted to avoid amending the agreement. There is no
doubt in our minds that the interpretation referred to earlier would
be wholly acceptable. We know it is already authorized because this
very point was the subject of discussion in various committee meetings
prior to Bretton Woods and at Bretton Woods.
As a matter of fact, Senator, we had a statement in the bank proposal, that they could make loans for stabilization purposes, but we
thought it was desirable to replace that with another phrase w^hich
would take care of stabilization loans and loans for monetary reconstruction. We thought we included that in the phrase "except in
special circumstances." So that there is no doubt in our minds that
this is the interpretation that was given to the powers of the bank by
all countries.
Senator TAFT. Well, in the Mexican Treaty, for instance, we put a
lot of reservations—interpretative reservations. I mean, we simply
wrote in—we said this thing in our opinion means so and so. Why
cannot we do the same thing with the fund ? If there is some doubt
about its meaning, why cannot we say what its meaning is according
to us, so that the other nations may understand what we think it
means ?
Mr. O'CONNELL. That is what we have done here, Senator.
Senator TAFT. NO, no. You have suggested an amendment. If
they say, "No," we are out unless we get a majority of the others to
go along. We have only 30 percent of the voting power—or 27 or 28
percent.
Mr. WHITE. AS I say, Senator, there is no question whatsoever in
our minds that this interpretation will be agreed to. It is not a question of assuming other countries will feel that way. We know they
do, because of our earlier discussions.
Senator TAFT. I am not particularly interested in this question. I
am interested in this rather extraordinary form by which we ask them
their opinion of what it means; if they say it means something else we
suggest an amendment. Maybe they won't agree to the amendment.
It seems to me the way to do it is to say what we want and let them
take it or leave it if we think it is important. I don't say that this
is necessarily important. I don't particularly care about the Bank
power on these particular questions.
Mr. LUXFORD. Senator, there is one difficulty that was not so important in the Mexican Treaty because there wye were dealing with only
one country. It was much easier to say to Mexico that this means so
and so. But here we are dealing with 44 countries. Where you have
44 countries and each of them begins to write in its own interpretations—or if you want to call them amendments—some of them will be
amendments whether those we write are amendments or not—the net
result will be you will have 44 legislative bodies instructing their
delegates to go back and get amendments in this language or that
language and it becomes almost impossible to try to adjust those
things.
j




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BRETTON WOODS AGREEMENTS ACT

Senator TAFT. In agreeing to this fund there were a lot of reservations made by other nations which appear in this Final Act and Related Documents.
Mr. LUXFORD. Those reservations are not part of the agreement in
any sense. What you are called upon to decide is whether the United
States is prepared to accept the agreement without those reservations.
Those countries, it is true, if they wanted to, could say, "We are going
to accept," and again repeat that reservation. "So our acceptance is
. contingent upon that language being placed in the agreement," and
their position at that point is that they have not accepted the agreement and they ultimately will have to make the decision as to whether
they are willing to go in without those reservations.
Senator TAFT. Then it cannot be said that 44 nations met at Bretton
Woods and agreed to this, because you say they made reservations.
Mr. LUXFORD. We have never said that 44 nations agreed to these
agreements. Their representative did agree that the agreement they
would submit to their country is the agreement set forth here. Now,
their delegations said, "We do not like certain of these provisions."
There were several of them, you will see by the record.
Senator TAFT. There were very important ones; Iran, Union of
South Africa, Union of Soviet Socialist Republics, France, and a kind
of an ambiguous statement by the British. I don't suppose it is quite
a reservation, but the others are pretty clear reservations as to certain
features of the agreement.
Mr. LUXFORD. That is right. They were saying, "We would have
preferred it this way." Now, the decision they have to make is
whether they are still going to insist on that. If they do, they have
not got themselves in a position to accept the agreement.
Senator TAFT. Here is another one. This is the Australian one.
What did you understand that to mean?
The Australian delegation considered that the right to withdraw should be
protected from being meaningless
Mr. LUXFORD. What they are referring to .specifically is that in the

bank agreement there is a stipulation that membership in the bank shall
be limited to those members of the fund who wish to accept membership. Now, the Australians objected to that on the ground that they
might not w\ant to go into the fund. As you can see from the reservations they have inserted and from the debate, the Australians wanted a
great deal more flexibility in the rate-of-exchange provisions. They
wanted further guaranties on access to the fund. In other words, they
would have preferred that condition. They would have liked to be
able to say, "We will take membership in the bank without necessarily
accepting membership in the fund." But the way the documents are
drafted you have to be a member of the fund in order to accept membership in the bank.
Senator TAFT. They talk of other international institutions. Is
there a broader term
Mr. LUXFORD. NO. It is
Mr. WHITE. Senator, in

section 1 of article I I there is a very brief
statement, stating that the original members of the bank shall be those
members of the International Monetary Fund which accept membership in the bank. In other words, if they are not members of the fund,
they cannot become members of the bank. The reason for that, as sug


BRETTON WOODS AGREEMENTS ACT

227

gested by Mr. Luxford, was that we have more, we believe, to gain by
the fund than other countries have. Some other countries are reluctant to tie their hands in the way in which they feel the fund does.
It restricts their scope of unilateral action. Some of them feel they
would be better off without restricting their field of unilateral action.
On the other hand, they would like to belong to the bank.
We have taken the position they are not a good credit risk for the
bnnk and acceptable members for the bank unless they do belong to the
fund and subscribe to the obligations called for in the fund.
Senator TAFT. There is nothing anywhere, as I understand it, that
would justify a requirement that they be also members of the International Labor Office or the International Educational Association, or
anything like that.
* Mr. WHITE. Definitely not.
Senator TAFT. This Australian thing refers solely to the fact they
have to he in the fund in order to be in the bank.
Mr. WHITE. That is right.
Senator MILLIKIN. I am not entirely satisfied with your explanation
of the effect of an interpretative reservation. Let us assume it is an
interpretative reservation and not an amendment in disguise.
Mr. WHITE. Yes.
Senator MILLIKIN. DO

you say that the sole question here is as to
whether you agree with this agreement as it is and that you do not
have the privilege of making interpretative reservations?
Mr. LUXFORD. All that I had in mind is this: While we might make
interpretative reservations, you open the door for 44 other countries to
go through the same process. Half of those may be really amendments
in disguise and not interpretations, and you get into the question
of whether you have any agreement. This form we have adopted certainly makes clear what the United States interpretation was of those
documents, just the same as if we had written it in the document, but
we say we are not going to try to do tjiis unilaterally. We are not going to impose this interpretation on 44 other nations. We say this is
the way we interpret it. We would like to have the fund and bank
members make the same interpretations. We are not telling them to
make this interpretation. If they don't make the interpretation which
is our interpretation, then we are going to introduce an amendment
to that effect at once.
Senator MILLIKIN. NOW, Senator Taft wants to know what may
come of that. Supposing you propose an interpretative reservation
that to your mind goes to the vitals of the plan, and that is a true interpretative reservation. You don't have a meeting of the minds unless
the other nations accept reservation. If it is an honest reservation,
assuming there isn't any conflict over it, and assuming there is a
meeting of the minds, there is no difficulty over it because they will accept it. If they do not accept it, and if you leave open an honest difference of opinion on something that is important, you really haven't
gotten an agreement, and perhaps you had better have a further
conference.
Mr. LUXFORD. We are confident by virtue of the discussion that went
on at Bretton Woods on this very provision that this was the interpretation of the Conference on this subject. There is no doubt in our




228

BRETTON WOODS AGREEMENTS ACT

minds but what it will be accepted, but we didn't want to be, for diplomatic reasons, in the position of saying, "You take this interpretion
or else." We think we have achieved exactly that result by saying this
is our interpretation, we would like to put it up to the Council to decide whether they agree with us. If they don't, we propose an
amendment. The United States Council, in turn, has to report back
to Congress, and obviously that is one of the things they could report
back if there was failure to accept that interpretative amendment.
Senator MILLIKIN. It depends, then, in the particular case, on
whether you want to speculate with something that the fund may
decide in the way of an interpretation or whether you want to assure
the interpretation by putting it in the form of an interpretative
reservation.
As Senator Taft points out, it is speculation the way it is in this bill.
Whereas if you state your reservation that must be accepted by all
other nations, you have had a meeting of the minds without
speculation.
Mr. LUXFORD. What you have to weigh is what you gain by insisting
on a unilateral reservation and running the risk that 44 other countries
will insert their reservations and then have to go through this whole
bargaining process again, as against what in our considered judgment,
is a remote possibility that there would ever be any trouble at all about
this amendment or about this interpretation.
We feel by virtue of the debate, that it would be accepted at once
on this basis. We say that the opportunity there for anything to go
wrong is extremely slight. You don't run into the chance of having
reservations by 44 other countries and of final agreement as to the
ultimate say-so even then.
Senator MILLIKIN. In the last analysis there isn't any one of the 44
countries that is not at liberty to propose changes through interpretative reservations.
Mr. LUXFORD. Or amendments.
Senator MILLIKIN. SO even though we abstained from it that does
not preclude some other country from indulging in the practice.
Mr. LUXFORD. Yes, but it doesn't invite them to do so. You see, we
are the first ones that are acting on this. If we take the lead then they
say we might as well get our reservations in, too, because we are going
to have some more bargaining.
Mr. WHITE. YOU spoke of this bargaining power. It is one thing
when you have a group of negotiators who represent their governments, but who cannot bind their governments; it is a different thing
when you have 30 countries who each have a mandate from their legislative bodies as we would have a mandate from Congress on a certain
interpretation. There cannot be any receding from that mandate.
There would be no possibility for successful negotiating because
each one would come to the table with a mandate from his legislative
body.
What you would be doing in effect is to offer a chance for division
among the countries, and the danger of that is great for this reason:
In every provision here the language was very carefully gone over;
was the subject of discussion and debate, and the wording represents,




BRETTON WOODS AGREEMENTS ACT

229

in many cases, a compromise. If you give the other country a new
opportunity to insert its reservations or its interpretations then you
would be confronting us with documents which we could not accept
because some of their interpretations would not be acceptable to us.
Then there would be no room for negotiation or adjustment because
each representative would be coming to the conference with a mandate
from his legislative body.
Senator MILLIKIN. That may run you into all sorts of trouble because it is an invitation to every other country to follow the same procedure. If that be done then the fund finds itself with the problem
of adjudicating 30 or 40 amendments to the agreement and God knows
what kind of confusion that may cause in your basic plan.
Senator TAFT. YOU are going to have a social and economic consulting body set up anyway.
Mr. WHITE. They wouldn't have any power in this matter.
Senator TAFT. This is going to be entirely separate from the United
Nations.
Mr. WHITE. I haven't read their final act, but the Economic and
Social Council, as it was, and I presume it is not changed in that respect, does have the authority to initiate reports and studies and to
coordinate the activities and policies of various international bodies.
Senator TAFT. I suggest this economic business is all one thing.
The making of agreements, trade agreements and monetary agreements, and loans, is one problem. As to Czechoslovakia, for instance,
we do not have three or four different bureaus out doing different things
with Czechoslovakia.
Mr. WHITE. Wouldn't you be willing to accept the statement that
they are different aspects of the same problem; different slices of the
same pie? I think in going over the agreement your committee and
Congress want to make very certain that they know precisely what they
are committing us to. It seems to me your questions bring that out
clearly. You would hesitate very properly in my judgment to subscribe to a document in which you think you are giving certain commitments only to discover later that there is an agency, a super-duper government which has been created which has authority in the same field
that you had no indication of.
Senator TAFT. My objection is that we have a branch here dealing
with Czechoslovakia, we have the State Department sitting over here
dealing with Czechoslovakia on the trade agreements. We have got a
representative on the Economic Council under somebody's head—I
don't know whose—dealing with Czechoslovakia about a lot of their
economic problems. We are just creating an international bureaucracy, it seems to me, that is not unified.
Mr. WHITE. We tried to meet that in two ways. We tried to meet
it in article X, page 21, by the article which states that the fund shall
cooperate within the terms of this agreement with any general international organization and with public international organizations having specialized responsibilty in related fields; and any arrangements
for such cooperation which would involve a modification of any provision of this agreement may be effected only after amendment to this
agreement, which means that Congress would have the authority to
enter into those arrangements for cooperation.




230

BRETTON WOODS AGREEMENTS ACT

Then under the Council which is created, there is a proviso in the
bill, section 4-a—
In order to coordinate the policies and operations of the representatives of the
United States on the fund and the bank and of all agencies of the Government
which make or participate in making foreign loans, or which engage in foreign
financial, exchange, or monetary transactions, there is hereby established the
National Advisory Council on International Monetary and Financial Problems
(hereinafter referred to as the "Council").

So there was a desire to meet the need for coordination of the various
activities which we think is met by article X of the agreement which
imposes that obligation on members, and section 4 of the bill which
imposes that obligation on the Americans.
Senator MILLIKIN. Will not the solution of the thing we are discussing now depend somewhat on the exact language of the plan
evolved at San Francisco? What is evolved at San Francisco will
take the form of a treaty. That treaty will have—will rule the
legislation. It will be the supreme law of the land and if the language
is broad enough in that treaty to subordinate this plan, it will be
subordinated. We cannot sit here and forestall a treaty by ordinary
legislation. I believe your counsel will agree with me on that.
Mr. WHITE. Part of what you ask is outside of my knowledge. I do
know this: that we were aware of that possibility. Many others at
San Francisco were aware of that possibility. We very carefully
avoided any language there that would conflict with article X or
section 4 of the bill, and other countries did likewise.
Mr. LTTXFORD. It is quite right that a treaty would prevail over
conflicting domestic laws, but the treaty is being drafted in terms of
positive knowledge of these various provisions and in an attempt to
coordinate them.
Mr. WHITE. One of the reasons I was there was to take care of that.
We left some men to watch it.
Senator MILLIKIN. At the time you left you were satisfied ?
Mr. WHITE. At the time I left I was satisfied; that is right. One
of my assistants and others cognizant of the problem remained there.
I haven't seen the final document.
Senator TAFT. This is supposed to be a National Advisory Council
made up of the Secretary of State, the Secretary of the Treasury, the
Secretary of Commerce, the Chairman of the Board of Governors of
the Federal Keserve System, and the Chairman of the Board of Trustees of the Export-Import Bank of Washington. It apparently subjects to that council the American representative on the fund, the
American representative'on the bank, and the Export-Import Bank;
is that correct? It does not subject the Secretary of State from making trade arrangements and it does not subject the American representative on the Social and Economic Council. It occurs to me that
in our dealings with a particular nation we ought to have somebody
there that determined our whole policy. Now there is nobody but
the President, as far as I can see.
Mr. LUXFORD. That is achieved in another way. You are going to
have the Secretary of State on this committee. Now, after all, he is
going to be conscious of what is being done with trade agreements,
also what is being done in the Security Council, because obviously, it
will be related to that. So we are not going to have this Council
acting in ignorance of what is being done in these other fields.



BRETTON WOODS AGREEMENTS ACT

231

The men who are going to formulate the policies are on this Council.
Mr. WHITE. TO do otherwise, it seems to me, would be to set up a
supercouncil that would almost replace your whole Government, because you have commercial policy; you have foreign policy; you have
financial policy; you even have sanitary regulations—all dealing with
international transactions.
Senator TAFT. In an event, this one under the direction of the
Secretary of the Treasury is supposed to be the boss of this outfit;
is that it?
Mr. LUXFORD. I wouldn't say boss.
Senator TAFT. I mean they determine the over-all questions of
policy.
Mr. LUXFORD. The Council does.
Senator TAFT. NOW, going on to this other section, section 14, which
is probably more important than section 13,1 would like to have your
view of that.
*
The governor and executive director of the fund appointed by the United
States are hereby directed to promptly obtain an official interpretation by the
fund as to whether its authority to use its resources extends beyond current
monetary stabilization operations to afford temporary assistance to members
in connection with seasonal, cyclical, and emergency fluctuations in the balance
of payments of any member for current transactions.

Now, if they say, yes, we have, our authority extends beyond current money stabilizations, then we propose an amendment again to
negative such interpretation. Then you have this awkward system
that you have in section 13, except here you are more likely to run
into trouble, it seems to me.
Mr. WHITE. One of the Congressmen, when it was explained, said
that should be pronounced cyclical, so we agreed we would from then
on refer to it as cyclical as in cycle. I think one of the dictionaries
provides a little support for that choice.
Senator TAFT. What is the- purpose anyway ?
Mr. WHITE. The purpose of the section is precisely as you indicated. Again there is absolutely no difference of opinion among the
American technical representatives, and we are certain none amongst
the others, that that was the intent and meaning of the articles of
agreement and that therefore is a restatement of it in the bill. I t may
be reassuring to some members to know there is no question but that
that is the interpretation of the fund.
Senator TAFT. Mr. White, let me ask you this question right there:
Would you object to taking it out—I mean the word "cyclical"?
Mr. WHITE. Oh! I thought you were referring to the whole thing.
Senator TAFT. NO. I am referring to the word "cyclical" first.
Mr. WHITE. Yes, we would object most strenuously to taking that
out. To do that would take one of the most important powers of the
fund away. The basis of the fund's operations is, very largely at least,
cyclical operations. The required repurchase of currency which a
country buys from the fund would usually be postponed for a year
or two, or might be delayed three or more years. During that cyclical
period the country is going to want assistance. If you are going to
prohibit the fund from undertaking what we economists call cyclical
operations, it would mean the fund would be so handicapped in its
operations that I doubt if any major country would agree to it.




232

BRETTON WOODS AGREEMENTS ACT

Senator TAFT. NOW let us go to this Russian business: I mean the
$300,000,000 they can draw down every year. Do you think if this
amendment is accepted, we will say, with the word "cyclical" in there,
that the Russians then can draw down $300,000,000 a year even though
there is no current exchange problem ?
Mr. WHITE. Well, I think there is some misunderstanding about
that.
Senator TAFT. Well, I am taking Mr. Brown's statement. He said
the Russians, he assumed, would draw down $300,000,000 a year for
capital purchases, to build capital goods or plants and so forth in
Russia; and he said he thought that was within the purposes of the act.
If you put this in here and say you cannot use the fund "beyond current
monetary stabilization operations," it seems to me you rule out the
Russian one billion two hundred million.
Mr. WHITE. I am sorry, Senator Taft, that I did not get your point.
In the first place, in regard to the Russians drawing down $400,000,000
a year, that is largely a matter of opinion, but
Senator TAFT. YOU mean $300,000,000 a year.
Mr. WHITE. Whichever would be their quota. My guess on that is
that they might do it for a year or so, but that they would not continue to do it. Russian credit is apt to be very good and this would
be an expensive method of getting aid. I think they would rather get
other forms of assistance. Whether they would utilize their full quota
would depend upon other arrangements they could make.
Senator TAFT. I simply took Mr. Brown's statement, and he assumed that. That is, he assumed that inasmuch as the Russians would
have no exchange themselves this would be drawn down; and I thought
you said you thought that would be perfectly all right because this
was something brought about by war and that, therefore, they could
draw down this money to make its goods.
Mr. WHITE. I believe that is a correct statement of his remarks,
that he thought if they did do it it would be appropriate. But I do
not think they would do it because it would be more expensive than
other ways in which they could get assistance.
Senator TAFT. Then do you not think they would object violently
to this amendment ?
Mr. WiirrE. To this amendment ?
Senator TAFT. Yes.
Mr. WHITE. NO. This is quite in accord with their view.
Senator TAFT. DO you mean cyclical is ?
Mr. WHITE. Yes; cyclical or emergency.
Senator TAFT. DO you mean "and emergency fluctuations in the
balance of payments"?
Mr. WHITE. Yes, sir. It is caused by an emergency; namely, war.
Or you might have a drought or a flood.
Senator TAFT. Then, perhaps, you can interpret it this way: That
the fund can be used for any purpose.
Mr. WHITE. For any purpose that is appropriate to a stabilization
operation. It is to help countries out in periods either of emergency
or of seasonal or cyclical difficulties. That is precisely what the stabilization fund is for.
Senator MILLIKIN. What about it being short-term or mediumterm or long-term ?



BRETTON WOODS AGREEMENTS ACT

233

Mr. WHITE. Not long-term. We would hardly call a cyclical fluctuation long-term. Cyclical means 3 or 4 or 5 years, the swings of
business through a depression.
Senator MILLIKIN. I take it that is not necessarily inherent in the
use of the term. For instance, in political philosophy you will see
it is claimed we are now seeing the end of the cycle started with the
French Eevolution.
Mr. WHITE. But you cannot properly use the word out of its context.
Senator MILLIKIN. What does it mean to an economist ?
Mr. WHITE. Cycles mean business cycles. There have been many
volumes written on the subject; there is a whole library on whether
or not a business cycle extends to 8 or 9 years or not more than 4 or 5
years.
Senator TAFT. I thought the big ones ran for about 20 years.
Mr. WHITE. A 20-year arrangement would definitely be regarded
as a long-term arrangement, and would definitely be inappropriate
for fund operations. A qountry like Russia would never delay repurchases that long because the interest rate on such an operation
would be phenomenal. You understand, the interest rate increases
as the term goes on.
Senator MILLIKIN. My suggestion is that the word "cyclical" admits of long-term operations.
Mr. WHITE. Not as it is generally used.
Senator MILLIKIN. But there is nothing in the word that precludes
that, is there ?
Mr. WHITE. There is to me. For instance, if somebody were to
speak of a 20-year loan and say that is a cyclical loan I should doubt
very much whether you would find many economists or bankers accepting any such interpretation. And the fund, after all, would decide the length of the term. The provision which calls for repurchase
has also the supplementary provision which causes the interest rate to
rise. That goes on as long as repurchase is postponed. After you reach
4 percent later on, the fund has the power to set whatever rate it deems
necessary. The fund is protected by that provision. If a situation
should arise where a country anticipated it would be able to repurchase within 3 or 4 or 5 years, and the fund later decided that a situation was developing which wTould make that impossible or unwise,
then that country should go to the bank for long-term assistance.
Senator TAFT. IS there any provision in the plan whereby that interest penalty could be abated ?
Mr. WHITE. It could be altered by a three-fourths vote. We thus
have a veto on any change.
Mr. LUXFORD. It could be increased too.
Senator TAFT. Mr. White, I think I have finished with everything
I had in mind except the broad question of just what this section calls
for.
Mr. WHITE. What is that?
Senator TAFT. When you get through with this thing what it seems
to look like—or at least in England they seem to think it has some connection with a return to the gold standard. Lord Keynes says:
If I have any authority to pronounce on what is and what is not the essence
and meaning of a gold standard, I should say that this plan is the exact opposite




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BRETTON WOODS AGREEMENTS ACT

of it. The plan in its relation to gold is, indeed, very close to proposals which I
advocated in vain as the right alternative, when I was bitterly opposing this
country's return to gold.

Would you say that this was in any sense a return to a gold standard ?
•
Mr. WHITE. I would say that this has some features of the gold
standard. Under the gold standard the parity of currency cannot be
altered except by law. You can go from one level to another, as we
did and as other countries have done. Under the fund arrangement
you cannot alter the parity of currency without the approval of the
fund, except for that 10 percent. That is as close to the gold standard
as we would be able to get countries to agree. Other countries will
not adopt the gold standard.
I think the point Lord Keynes was making was that he was looking
at the flexibility, and we are looking at the degree of stability; it is a
question of names. For instance, the British call a truck a lorry
while we call it a truck. I understand now they are beginning to use
the term "track"; and perhaps some of our boys returning from overseas may begin calling them lorries. But irrespective of what you call
it the nature of the fund is clear to us and to them. It assures a greater
degree of stability in exchange rates than if each country was able
to operate unilaterally; and as you get closer to the gold standard
you find countries like Australia objecting, and you find certain individuals in the British Empire objecting.
Senator TAFT. Mr. Keynes says success or failure depends upon omr
own domestic policies and not the other way around. Isn't that a very
clear description of managed currency having only such relation to
gold as you seefitto establish a program ?
Mr. WHITE. My hesitation in answering your question lies in your
inclusion of the term "managed currency." Managed currency is
something which every country has and has had for many years.
To find a time when you did not have a managed currency, and I am
including the United States, you will have to go back at least a generation or more; so that either with the fund or without it, you have managed currency.
There are degrees of management. You can go a long,way and you
can go a short way. I think Keynes would be inclined to go a longer
way than some of us would. The fact that he takes the position in
that article that he wants the external value to conform to the internal
value and not the internal value to conform to the external value
arises from a controversy which exists in England and other countries. I think their experts fear losing foreign markets by virtue of
the fact that the prices of British goods are too high. They have
the choice of one of two alternatives: Either they can make their
goods stop being so costly to tHe foreign country by forcing their price
level down, or they can leave prices and wages where they are, and
lower the parity of their currency to an amount equal to the rise in
prices. What Keynes is referring to is the late 1920's when England
was losing some of its foreign market, and there was the demand that
there be a contraction of prices, that wages be reduced, that social security be cut down, in an attempt to make their goods more attractive to foreign markets.
Keynes' position at that time, and the position today of the bulk
of the British and other nations, is that you must not induce unemploy


BRETTON WOODS AGREEMENTS ACT

235

ment and depression at home just because you are subscribing to a
fetish of a fixed rate of exchange. It is much better not to have
depression, unemployment, and a lowering of wages; to leave that
alone and lower the gold parity of your currency to compensate for
that increase, and you will then be in position to maintain your
foreign markets, and you will not do it by putting the home folks
through a wringer from which they may never emerge in sound condition. That is what he has in mind.
Senator TAFT. That may be true in a country whieh depends so
largely upon export trade as the English.
Mr. WHITE. Yes5 sir.
Senator TAFT. It seems to me that you have a series of managed
currencies throughout the world, loosely tied together, because they
can go up and down 10 percent.
Mr. WHITE. It is not that; exchanges cannot go up and down 10
percent.
Senator TAFT. I think Keynes accepts the view that he could go
out and devalue indefinitely because of the social-security policy you
have just been referring to; and you cannot do anything about it.
Mr. WHITE. If he does do that we are not adversely affected. If
prices in England were
Senator TAFT. I am simply saying you are not providing a stable
currency, which is the plan of the fund.
Mr. WHITE. I think there is one difference, Senator Taft, which needs
clarification. There is confusion, very unfortunate confusion, between
the word "stability" and the word "rigidity." Stability does not mean
rigidity. Stability does not mean fixed rates. Stability means that
degree of flexibility w^hich will not upset the economy, which will
not induce major disequilibrium. For instance, I am told that the
tower of the Empire State Building in New York sways something
like 20 inches in the wind. I imagine any engineer would say that
that provides stability; that if you did not provide for that swaying
it would be rigid and the tower might topple. It is the same thing
with exchange rates. What we are interested in is to avoid disruption and decline in world trade. The way to do that is to have
stability and not rigidity. We have tried rigidity in the past and
it has broken down.
Senator TAFT. Let us suppose that this fund had been in effect
in 1933 when we proceeded to devalue the dollar 40 percent. I assume we could have done so, and that if anybody had objected we
would have said that is our internal policy; we have to raise wages
and prices. I do not know who wants that as a theory; and I do
not think you could say that 40-percent depreciation of the dollar
is any more stability than it is rigidity. It is not stability at all,
in my opinion. It is what you are trying to get away from, it is
instability.
Mr. WHITE. Without going into all the pros and cons of the wisdom
of that step at the time
Senator TAFT. What I should like to have your views on is whether
you think we could have done that.
Mr. WHITE. It would be a speculation. I would be inclined to think
that we unquestionably could have reduced the gold value of the
75673—45




16

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BRETTON WOODS AGREEMENTS ACT

dollar, but I doubt whether you could have gone as far as 40 percent.
But that is my opinion. Some think we went too far. You will
remember that we did not change the value of our dollar until thirtyodd countries did so. That was one of the reasons for President
Roosevelt calling a halt to the London Conference, that some of the
representatives sent there wTere going to fix things at the level which
prevailed at that time. Other currencies had already depreciated to
a very substantial extent, and they were satisfied. • They had already
got their depreciation. They were leaving us with $20 an ounce for
gold, and they wanted to fix that rate. It is similar it seems to me,
as when the fellow who has given you two or three socks in the jaw
before you can respond says "Let us stop fighting." We were in danger
of being strangled by a $20 gold rate.
Senator TAFT. If we had done what they proposed we would have
greatly increased imports into this country. I suppose that is the
theory, and that we would thereby have increased foreign trade.
Mr. WHITE. NO. What you would have done would have been to
increase unemployment here. And you would have discouraged any
price rise; you would have intensified the depression.
Senator TAFT. I do not mean to get into a discussion of this or that
possibility, but was using it as an illustration of the fact that in all
probability we could have done it under the fund, and as long as
that kind of condition exists in the fund I do not think you have
stability.
Mr. WHITE. My colleague w^hispers in my ear and I give voice to it,
that I do not think we would ever have reached that point if the fund
had been in existence. But it is one of those if questions, and there
is no particular value in exploring it.
Senator TAFT. They could not pay their debts.
Mr. WHITE. Let us leave that for future Ph. D.'s.
Senator TAFT. In any event, the dispute as to the gold standard is
one more of name than of substance. But it does not seem to afford
the stability of the gold standard.
Mr. WHITE. In the judgment of many persons, and there is, of course,
a difference of view, it provides greater stability than the gold standard.
The mere fact that you go on a gold standard does not mean that you
stay there. I brought that chart out to show you that while a lot of
countries march up the hill, when they get to the top they slide down
again. My friend Kemmerer went around the world establishing gold
standards, and every time he was called upon to fix up a monetary system he had a formula, and usually kept to it. When the first serious
ill wind came, it broke down. So that merely going back on the gold
standard does not correct our troubles. If the currency can remain
there, all right. But if conditions favor maintaining the gold standard in some countries, they will not alter their currency values under
the International Monetary Fund at all.
Senator TAFT. If they cannot stay on the gold standard then they
cannot stay upon the standard you fix here. It cannot be both elastic
and starble.
Mr. WHITE. I am not an engineer but I imagine the strongest kind
of rod is one that is flexible and not one that does not yield at all.
The CHAIRMAN. That is all very interesting, but if there are no
further questions we will conclude for the evening. Does any member
of the committee wish to ask Mr. White any further questions ?



BRETTON WOODS AGREEMENTS ACT

237

Senator MCFARLAND. I had one question in mind, Mr. Chairman.
The CHAIRMAN. Proceed, Senator McFarland.
Senator MCFARLAND. I notice that the United States is prohibited
from paying governors and executive directors any salaries. Why was
that done ?
Mr. WHITE. The intent was to make the fund and bank self-supporting.
Senator MCFARLAND. What is there to check them from voting too
high salaries for themselves?
Mr. WHITE, They cannot pay the governor. They can pay their
full-time executives. Is your question: What would prevent them
from voting high salaries ?
Mr. LTJXFORD. The governors fix the salaries of the executive
directors.
Senator MCFARLAND. Who pays the governor ?
Mr. LUXFORD. They will be paid their actual expenses. That is not
a full-time job.
Senator MCFARLAND. Won't we pay our own governors?
Mr. LUXFORD. NO. Just their transportation and actual expenses.
Senator MCFARLAND. The bank will pay ?
Mr. LUXFORD. Yes, sir.
Mr. WHITE. The expenses, but no salary.
Senator MILLIKIN. The governors are already under salary.
Mr. WHITE. They might have a salary if they have a connection.
Senator MILLIKIN. I was confusing the governors with the council.
Mr. WHITE. There is much more likelihood they will be underpaid.

These are two $10,000,000,000 institutions. The president of the Federal Reserve Bank of New York gets, I think, about $45,000 a year.
Presidents of most of the big national banks get $75,000 a year. The
presidents of many $2,000,000,000 corporations get $150,000 a year.
My guess is that what the executive directors of these $10,000,000,000
institutions will get will be a lot less.
Senator FULBRIGHT. What does the Governor of the Federal Reserve Bank get?
Mr. WHITE. It is $45,000,1 think.
Senator FULBRIGHT. What does Governor Eccles get ?
Mr. WHITE. He gets $15,000 a year, but that is because the Federal
Government pays him. Private banks pay more. I hope you will
not ask me—but never mind.
Senator FULBRIGHT. What did you start to say ?
Mr. WHITE. I have forgotten.
Senator FULBRIGHT. Oh, no. I do not think you have forgotten.
Go ahead and tell us what you started to say.
Mr. WHITE. I may remember it later on.
Senator TAFT. There was some suggestion in the House of Representatives that we should put the bank and the fund together, at least
to the extent of making the same man the American representative
of the fund and of the bank. Is that possible under the bill as now
provided or contemplated, or are you opposed to the whole idea ?
Mr. WHITE. Suppose you let Mr. Luxford answer that question.
Senator TAFT. All right.
Mr. LUXFORD. In recognition of at least what the House committee
felt was the germane part of that matter, namely, to get a higher



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BRETTON WOODS AGREEMENTS ACT

degree of coordination on policy, the House committee and the House
modified the original bill in this sense: Previously you were to have
a governor appointed for each institution. The House bill said if
you were to combine the United States governors, so there would be
only one governor to represent us, you would get coordination in the
institutions you are setting up here. You would then get a high level
of coordination in the policies of the two institutions without running into the difficulties that they visualized by having two separate
governors. Beyond that there were other reasons for and against
doing it. But the House felt that by naming one governor for the
two institutions, and by having this coordinating Council, you would
then have the necessary degree of coordination. And the Council requirement is that they report back to Congress as to whether or not
they are getting that degree of coordination.
Senator MILLIKIN. But not over-all.
Mr. LUXFORD. It assures coordination in American policy, but it
does not insure that
Senator MILLIKIN. But not over-all.
Mr. LUXFORD. Congress will have a report as to whether they are
getting coordination.
Mr. WHITE. There is the provision in here also which calls for close
coordination with the bank.
Senator MILLIKIN. AS I see it, one can come to the fund with one
request and a story in support thereof, and then go to the bank
With another request and a story in support thereof, and there might
never be any coordination between the two, and there might never be
the proper and needful relationship.
Mr. WHITE. It was because of the possible danger of that that we
included two provisions: One, that the bank and the fund will coordinate their activities, and that the information of each will be
available to the other. And also that the council will have both
under its jurisdiction. I think you will probably find in fact that
the degree of cooperation of these two institutions will be very close
indeed. They will also exchange information.
Senator MILLIKIN. It should be especially close if you are going
to expand this word "cyclical" into "long-term."
Mr. WHITE. Well, that is quite clear. The bank would hardly
undertake any such arrangement without the acquiescence of the fund9
and vice versa.
Senator MILLIKIN. But would the fund do something without the
bank's acquiescence?
Mr. WHITE. I do not think so.
Mr. LUXFORD. That is where the vice versa comes in.
Mr. WHITE. I think you can visualize such a group as it gets around
a table, just as in the case of a board of directors. They would watch
this matter very carefully. Judging from our own activities in the
Government on matters in which we are interested, we know what
others are doing. When this was first envisaged it was thought there
might be two branches of the same organization, but it was very
quickly seen that the operations of both would suffer if they were
put under the same directing head. And there was*also this thought
in the minds of people who had decided on this arrangement. You
see, you can make mistakes in the bank, wrong judgments and deci


BRETTON WOODS AGREEMENTS ACT

239

sions, but the "chickens will not come home to roost" for 10, or 15,
or 20 years. On the other hand, if you make wrong decisions in the
fund you will find out your mistake more quickly, because it will come
right before you soon. If you have both the fund and bank in the
same institution, there would be a strong temptation for the board
of directors to hide any mistakes by making it possible for countries
to borrow on long term from the bank but repurchase from the fund,
so that the errors would not be so easily discoverable.
The CHAIRMAN. If there is nothing else this afternoon, we will
adjourn to meet at 10: 30 o'clock tomorrow morning. We are going
to have Mr. Bernard E. Finucane.
Senator FULBRIGHT. What was that name, Mr. Chairman ?
The CHAIRMAN. Mr. Finucane. I assume that is the proper pronunciation.
Senator TAFT. We are to hear representatives of the New York
State Bankers Association. Mr. Bernard E. Finucane is president of
the Security Trust Co., Rochester, N. Y. We are also to hear Mr.
Diefendorf. And perhaps Mr. Roeg, vice president of W. R. Grace
Co., who, if he comes, will be separate from the New York State
Bankers' Association.
The CHAIRMAN. These are witnesses of the opposition.
Senator TAFT. I might add that we expect to have John H. Williams, of the Federal Reserve Bank of New York, and Allan Sproul,
of the Federal Reserve Bank of New York, who are to be heard on
Thursday. And also Merwin K. Hart, and perhaps Mr. Beckhart,
though I do not know whether he will come or not
The CHAIRMAN. Very well. The committee will stand in recess at
this time, and we will hear from the opposition tomorrow morning.
(Thereupon, at 5 p. m., Tuesday, June 19, 1945, the committee recessed until 10:30 the following morning.)







BKETTON WOODS. AGBEEMENTS ACT
WEDNESDAY, JUNE 20, 1945
UNITED STATES SENATE, COMMITTEE ON BANKING AND CURRENCY,

Washington, D. 0.
The committee met at 10: 30 a. m.? pursuant to adjournment on Tuesday, June 19, 1945, in room 301, Senate Office Building, Senator Robert F. Wagner (chairman) presiding.
Present: Senators Wagner (chairman), Barkley, Radcliffe, Downey,
Murdock, Fulbright, Tobey, Taft, Butler, Capper, and Millikin.
The CHAIRMAN. The committee will come to order. Our first witness will be Bernard Finucane, president of the Security Trust Co.
of Rochester. I have known him since he was a little boy. He is older
and wiser now.
STATEMENT OF BERNARD E. FINUCANE, PRESIDENT, SECURITY
TRUST CO., ROCHESTER, N. Y.

Mr. FINUCANE. Thank you, Senator. I am older now. I am not so
sure about the second part of your statement.
I am here as president of the New York State Bankers Association,
and I would like to, if you will permit, give a statement which I have
prepared which covers it in very, very brief form, the report which
the special committee on international monetary matters of the New
York State Bankers Association prepared.
I am very sorry that Mr. Johnston, the chairman of that committee,
could not be here, but I will give you, first of all, the names of the
members of the committe. Percy H. Johnston was chairman of the
committee. He is chairman of the Chemical Bank & Trust Co. of New
York.
H. Donald Campbell, president of the Chase National Bank of New
York.
Charles H. Diefendorf, president of the Marine Trust Co. of Buffalo.
Myself as president of the Security Trust Co. of Rochester and
president of the association.
Mr. D. S. Iglehart, director of the Grace National Bank of New
York.
C. George Niebank, president of the Bank of Jamestown, Jamestown,
N. Y., then president of the association.
Mr. William C. Potter, chairman of the Guaranty Trust Co. of New
York.
Gordon S. Eentischler, chairman of the National City Bank of New
York.




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BRETTON WOODS AGREEMENTS ACT

George Whitney, president, J. P. Morgan Co.
Those gentlemen were the members of our committee.
Mr. J. H. Riddle was secretary and technical adviser to our committee, and he is with us today, as is Mr. Diefendorf.
Albert L. Muench, secretary of the New York State Bankers Association, acted as associate secretary of the committee.
If I may I would like to read this statement in which I have very,
very briefly put in the salient features of our report. I would like
to say before I come to this reading, although there may be a slight
duplication when I do read, we organized this committee, we gave it
a great deal of study, there was a tremendous interest in this undertaking, as there should be in an association of bankers in the State of
New York where there are so many large and important banks. My
obligation on the committee, really, as incoming president of the association, was to observe that the findings of the committee were really
and truly ultimately communicated to the membership and that they
expressed the feeling of the membership.
The fundamental thing throughout our deliberations, which was
extremely satisfactory to me, was the desire of our committee, which is
so much in tune with the desire of the membership of our association,
to bend every effort toward the end of international cooperation.
Senator TOBEY. That is, toward the objective, you mean?
Mr. FINUCANE. That is right. Thank you very much for your
correction.
Toward the objective of that international cooperation. We principally, of course, want that international cooperation that we become
a party to. We want to work, and we hope that the instrumentality
will provide a working plan that will actually work and be successful.
So if at points we are critical of the plan, it is merely because we hope
that the plan will be effective, whatever the final thing is, to a degree
that the objectives will be attained.
Senator TOBEY. May I say as one of the proponents of the Bretton
Woods agreement, I have never questioned the attitude or the sincerity
of your group or any other group that takes a different point of view.
This is a democratic process that is working. There are two sides to
every question and we thrash them out and let the facts prove the
case. So we respect you as sincere opponents along constructive lines.
I am glad to make that suggestion.
Mr. FINTTCANE. Thank you, sir.
Mr. Diefendorf and I are glad to appear before you representing
the Committee on International Monetary Affairs of the New York
State Bankers Association. We also have with us Mr. J. H. Riddle,
secretary and technical adviser of that committee. Mr. Diefendorf is
president of the Marine Trust Co., of Buffalo, and I am president of
the Security Trust Co., of Rochester, N. Y.
As president of the New York State Bankers Association, it is my
desire to present to you, in the absence of the chairman of this committee, the report which was written after a long period of study of
the Bretton Woods proposals.
I might say that—well, I will go on with the statement.
A number of experts appeared before the committee, including several delegates to the Bretton Woods Conference and experts from the
State Department, the Treasury Department, and the Federal Re


BRETTON WOODS AGREEMENTS ACT

243

serve System. The period of study and the taking of testimony ran
for about 4 months with the result that we have prepared a very careful
report for your consideration.
We hope that this report has been and will continue to be helpful
to the members of your committee and to the members of the Senate
and House generally. It was written with that thought in mind.
Our committee approached the study of the Bretton Woods Proposals with complete objectivity and with full realization of the important role which the United States will play in international affairs in the postwar period. "Whatever differences of opinion may
exist as to methods," the committee stated, "there can be no difference
as to the necessity for discussion and cooperation in international
trade and in monetary and financial matters. We are mindful that the
political and economic interests of the United States are bound to
those of the rest of the world
The stated purposes of the Bretton Woods proposals are of such importance,
and their effects, if adopted, would be so far-reaching, that we should have
been remiss in our duty had we not approached our task with the determination
to bring to it our best efforts. Because of their importance the proposals should
not be accepted or rejected on general or superficial grounds. They should not
be rejected if they are likely to accomplish their high aims. They should not
be accepted if careful consideration leads to the conclusion that they are less
likely to further than to jeopardize those objectives.

Now, our conclusions.
The committee was in full agreement with the purposes of the fund,
but expressed grave doubt as to whether these purposes could be realized by the adoption of the monetary plan. It concluded that the fund
was not a suitable instrumentality for dealing with the tasks that lie
immediately ahead. International peace and security, internal stability in each country, and the removal of international trade barriers are the basic problems that demand attention. Until substantial progress has been made in dealing with these fundamentals, real
monetary stability cannot be attained.
More specifically the committee concluded:
(1) That the establishment of the fund at this time will not result
in the achievement of economic stability or the elimination of exchange controls, but would tend to perpetuate exchange controls and
other restrictions on the free movement of trade.
(2) That the safeguards are not adequate to assure the sound use of
the fund's resources.
(3) That the fund might not be able to function effectively if the
trade balance were to run strongly in favor of the United States and
the supply of dollars in the fund were to become scarce.
(4) That the lack of agreement on the interpretation of the fund's
provisions raises additional doubts as to the feasibility of the plan.
Senator TAFT. DO you mean a difference between the interpretations
of this country and England, for instance?
Mr. FINUCANE. Yes; that would be an example.
(5) That the divergence of conditions in the various countries are
so great that the stabilization of each currency must be treated as an
individual problem. The committee does not think it possible to develop a workable formula that could be applied to all cases.
As to the International Bank, the committee believes it could play
an important role in postwar reconstruction. Through its selective



244

BRETTON WOODS AGREEMENTS ACT

lending for specific constructive purposes, the Bank would not only
serve a long-range end, but its facilities could be brought to bear immediately on the problems of basic economic reconstruction. The committee further concluded that international cooperation in monetary
matters could be facilitated by the bank without establishing the particular type of credit facilities provided by the Fund.
Recommendations: The committee recommend for consideration the
following
Senator MILLIKIN. Mr. Chairman, may I interrupt a second? Has
the report been made available ?
Mr. FINUCANE. Yes, sir.
Senator TAFT. Mr. Finucane,

in that connection, we have not been
able to locate the report you said was sent down here. Would you
be kind enough to send a copy of the report to each member of the
committee ?
Mr. FINUCANE. Yes, sir; I will be glad to do that. I believe we
sent a copy to every member of the House and Senate.
Senator TAET. NO doubt the members let them get lost, so that if
you could send another copy to each member of the committee, I
would be obliged.
Senator BARKLEY. I don't think we got them.
Senator FULBRIGHT. I got a copy a long time ago.
Senator MILLIKIN. Could we have that rather promptly?
Mr. FINUCANE. Yes, sir.
Senator BARKLEY. It would

not be strange if one document out of
the thousands we have gotten in the last few months got lost.
Mr. FINUCANE. That which has passed my desk, and I am merely
from up-State, has been quite large. The committee recommends
briefly, as follows:
(1) That action on the proposal for the International Monetary
Fund should be postponed until basic conditions have become sufficiently stable to provide a reasonable chance of its attaining its objective.
Senator TOBEY. Of course, some of us look upon the fund as one of
the factors that will make stabilization come a little quicker. That is
the other point of view.
Mr. FINUCANE. Yes; of course, I realize that point of view exists,
but from our deliberations we came to the other viewpoint.
(2) That the International Bank for Reconstruction and Development be accepted with whatever changes may be desirable—there are
certain features of the fund designed to encourage international monetary cooperation that, in modified form, could be tranferred to the
bank.
(3) That further study and consultation be undertaken to determine how the International Bank might appropriately assume limited
stablization functions, i. e., how and when stabilization loans might be
granted, whether this would require additional capital funds for the
bank, and how such funds might be provided.
Senator RADCLIFFE. Mr. Finucane, I don't want to bother you with
any detailed comparison at this time, but generally speaking you were
referring a moment ago to the report of the New York Bankers Association, weren't you?
Mr. FINUCANE.



Yes.

BRETTON WOODS AGREEMENTS ACT

245

Senator RADCLIFFE. I S that substantially in accord with the report
of the American Bankers Association ?
Mr. FINUCANE. I would say that to a considerable extent it is. We
rather wholeheartedly endorse the bank and we have reservations about
the fund.
Senator RADCLIFFE. Without asking you to go into details, is there
any particular point where there is a difference between the two?
Mr. FINUCANE. I think the New York State Bankers Association
calls for postponement of the fund, and I think the ABA calls for
elimination of it.
Senator TOBEY. Mr. Finucane, you held up a little book, that little
leather-covered book. Would you hold that up so the members of
the committee can see it? I call your attention to the fact that has
"Bretton Woods" with your name printed on it. Had you submitted
your report in that form I guarantee we would have kept it.
Mr. FINUCANE. This was given to the committee by the President
for the hard work they put in over a long period. He was so astonished
that the members worked so hard he thought they should have a special
reward, and this is the reward.
(4) That the Johnson Act be repealed, and that the First World
War debts and the lend-lease obligations be promptly and equitably
disposed of in such a way that they will not present an obstacle to
balanced-trade relations and international monetary stability.
Senator BARKLEY. What is your idea about the promptest and best
way to dispose of World War No. 1 debts—forget it?
Mr. FINUCANE. I am afraid I should not express my opinion on
that. I am really not well qualified to give you that advice. I wish
I were.
Senator BARKLEY. That statement is rather a platitudinous statement that they ought to be disposed of in such a way that they will
not interfere with trade. I wondered if they had any specific idea
about the manner of their disposal.
Mr. FINUCANE. We certainly haven't in this report, but generally
speaking, it is my personal opinion that we have to rely on you gentlemen here.
Senator BARKLEY. We have been trying to make some disposition
of those debts for a quarter of a century.
Mr. FINUCANE. Yes; I understand that.
Senator BARKLEY. Some of us have some very definite ideas about
whether they are ever going to be collected, and I am one of them.
I wondered if you wanted to express an opinion.
Mr. FINUOANE. Personally, I don't think they can or should be
collected, as far as I am personally concerned, but I am discussing
now the report of the committee, and I think that is a little outside
of this. I think you and I are in agreement, personally.
Senator MILLIKIN. DO you think there is even a trading advantage
left to us in those loans ?
Mr. FINUCANE. Well, I wouldn't like to trade on them very much.
Senator BARKLEY. There isn't very much trading value in a corpse,
is there ?
Mr, FINUCANE. That is right; and I don't think we should use them
to trade on. They are a thing of the past. But I certainly don't feel
I am qualified to advise you gentlemen.



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Senator TOBEY. If they were in your bank portfolio you would
charge them off, wouldn't you ?
Mr. FINUCANE. Yes.
Senator MILLIKIN. I

should like to say that the undertaker would
not agree with the thesis of Senator Barkley.
Senator BARKLEY. They have no permanent trading value even in
a corpse.
Senator DOWNEY. Mr. Chairman, Senator Fulbright has made e
very valuable suggestion, which is very pertinent right at this point.
I w^ould like to have him state it for the record.
Senator FULBRIGHT. Oh, no. No.
Senator MILLIKIN. I think by all means we should insist on it if
he has a solution for the payment of the debts. If he has a solution in
mind which does the job, and I think we should hear it.
The CHAIRMAN. I think we would all be interested.
Senator FULBRIGHT. Oh, I was just saying that if we could get them
canceled and distribute the loss, we might give everybody credit in
his income tax for that deduction.
Senator TAFT. May I say; there is a bill pending, Senator Fulbright's bill. I think the only hesitation about it was whether there
should be some further regulation of the sale to the public of foreign
securities than we now maintain in the Securities Exchange Act,
before that Johnson Act was completely repealed. I think that is
the only thing that has delayed it.
Senator BARKLEY. That is not the only thing that has delayed it.
Senator TAFT. NO; of course not. [Laughter.]
Mr. FINUCANE. May I proceed?
The CHAIRMAN. Of course.
Mr. FINUCANE. (5) That, although stabilization of the pound is
primarily a TBritish problem, the United States should be ready to
cooperate w ith Britain, if invited to do so, in any study she may
undertake to reach a solution of her reconstruction problems.
(6) That steps be taken to carry out the recommendations of the
Bretton Woods Conference that the participating governments seek
to reach agreement as soon as possible on ways and means to reduce
obstacles to international trade.
That, gentlemen, is about the trend that our report took. It is
put in as concise form as I was able to do it. We distributed this
report to our membership, asked them to study it, and at a meeting
of our Council of Administration, which is representative of every
geographical section in the State of New York, the findings of the
committee were unanimously approved. So that it is truly a representative report of the taking of the New York State Bankers Association.
Mr. Chairman, Mr. Diefendorf is here from Buffalo, and if you will
permit, he will go into other details of the report in a more detailed
manner than I have in this presentation.
The CHAIRMAN. Very well.
Senator BARKLEY. May I ask a question ?
The CHAIRMAN. Surely.
Senator BARKLEY. Your report and your association is favorable to
the bank but not to the fund, as I understand it. I haven't had a
chance yet to read this report, but that is the general attitude you
take?



BRETTON WOODS AGREEMENTS ACT

247

Mr. FINUCANE. Well, we cannot say we are unfavorable to the
fund for all time to come. We just don't think it will work in this
early transition stage.
Senator BARKLEY. Of course, these 44 nations met at Bretton Woods
and formulated this plan, which includes the bank and the fund.
It it is true that if we eliminate the fund and only agree to the bank
that the nations would have to be called together in another conference, because we couldn't have a unilateral amendment to this plan
without calling them back into conference, do you think to have to call
a conference again and thrash this whole thing out again, with all the
delays and the uncertainties and the vacillation that it would indicate
on our part, would it be conducive to the stabilization of currency or
the settlement of world economic conditions, or would it be otherwise?
Mr. FINUCANE. Decidedly, I believe, it would be otherwise.
Senator BARKLEY. YOU don't recommend that course?
Mr.-FINUCANE. I certainly do not.

Senator BARKLEY. Isn't it true that the function of the bank, which
is a lending agency for long-term credit, does not lend itself to
ordinary current and temporary stabilization operations, and wouldn't
it be, even if you combined them, you would have to set up a separate
division in the bank for stabilization purposes. You could not combine them with your long-term loans, could you ?
Mr. FINUCANE. NO. I think probably if you combined the fund
and the bank you would certainly have to have a separate department
in the bank for your short-term stabilization loans.
Senator BARKLEY. They are entirely separate types of operations,
aren't they ?
Mr. FINUCANE. Well, you se,e the point in our recommendation here
isn't that the fund be done away with, but that the fund be postponed—that the operation of the fund be postponed.
Senator BARKLEY. And while it is postponed, what will happen,
what will take place in regard to the stabilization of currency ? Who
is going to stabilize it? If it is postponed the bank will not have any
jurisdiction over that. You will just have the bank making longterm loans and probably helping to make capital investments of a
long-term character, but you won't have anybody stabilizing the currencies, unless you depend on each nation to stabilize its currency with
some other nation by a bilateral agreement, which would mean that
there would be no uniformity or no coordination among the nations
all over the world whose currencies may not be stabilized. What is
your reaction to that idea ?
Mr. FixucANE. My feeling is that the fund during this transition
period would probably be inadequate of itself to stabilize the currency
of all of these nations until conditions within these nations, their
financial economy and their political situation are straightened out
to a considerable degree.
Senator BARKLEY. Even though it might be inadequate it would
be more adequate than no fund at all, wouldn't it ?
Mr. FINUCANE. NO, I don't feel that way personally, that it would
be better. I think we would find dollars would be drawn down and
you would come into the scarce currency situation. If I might say
so, Mr. Diefendorf, I feel, is better qualified to answer those questions
than I am. I am really getting a little over into his territory.



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BRETTON WOODS AGREEMENTS ACT

Senator BARKLEY. All right. That is all.
Senator TOBEY; One of your conclusions was that the fund restricted
the free movement of trade. Do you care to amplify that as to how
the fund, if in operation, would restrict free movement of trade ?
Mr. FINUCANE. That is No. 3. It states that the fund might not
be able to function effectively if the trade balances were to run strongly
in favor of the United States and the supply of dollars were to become
scarce.
Senator TOBEY. I think in another place you state the fund would
restrict the free movement of trade. I just wondered, in that specific
charge of your indictment, how it would restrict the free movement
of trade.
Mr. FINUCANE. That is No. 1. Because we feel that the establishment of the fund at this time before there is internal stabilization in
these countries would continue exchange control or maybe even add to
present exchange controls and in that way restrict the free movement
of trade.
Senator TOBEY. IS it in your thought at all that the setting up of
fund and the participation of 44 nations would in and of itself affect
the progress of trade stabilization in this country, the fact they were
all together, one for all and all for one in this operation, the significance
of an organization in which they all participated, wouldn't that of
itself create sentiment and opinion for improvement in building up
to where the world is joined together?
Mr. FINUCANE. That would be the ideal. How it would work is
another question.
Senator TOBEY. In the face of your statement that that is the ideal
thing to do, where the alternative is chaos, isn't it the part of wisdom
to make an attempt honestly and sincerely towards some movement
like this, to bring some order out of chaos?
Mr. FINUCANE. Yes; definitely so; but it is also so important that
the attempt be successful. We feel that later on this fund would
have so much greater chances of success than at the present time.
And now, if the dollars were drained off and the fund became inactive
or became unable to act, then we would have run out of our ability to
help or be helpful.
Senator TOBEY. YOU are familiar with the limitations on withdrawals, 25 percent in any one year and so on ?
Mr. FINUCANE. Oh,

yes.

Senator TOBEY. Did those things occur to you ?
Mr. FINUCANE. Yes.

Senator TOBEY. Then based on the overall picture you still think
it should be postponed until the nations themselves are able to stand
on their own feet?
Mr. FINUCANE. It should be postponed until we can clearly at least,
evaluate the currency of these nations.
Senator TOBEY. Isn't it perfectly natural that men in your profession, and I esteem it most highly, should by attrition have brought
into your minds the conservative point of view which is notable in
commercial banking, and are prone to feel that today under a world
situation which is chaos, in which we are all trying to bring the world
back together, that is a factor in influencing you to come to these
decisions? That seems to me perfectly natural/ Isn't that so?



BRETTON WOODS AGREEMENTS ACT

249

Mr. FINUCANE. I am sorry to say I don't agree with you. Even
though we are bankers we have children in this war. We want to
bring the peace as much as the war. I am so impressed with this group
of gentlemen who are so much better qualified than I am—I was so
impressed with their desire to do something helpful.
Senator TOBEY. That is most commendable, but I also suggest that
we sit here as a jury in this matter and the point I make it your organization taking this position and yet over and against that we have
such organizations as the C. E. D., we have the bankers in Philadelphia,
and we have independent bankers from all over coming in and claiming this thing will work and urging its passage. So we stand here
with eminent authorities on both sides differing.
Mr. FINUCANE. Yes, sir. I might say this, although I very definitely don't want to try to tell Mr. Diefendorf's story for him, it is
only natural to speak as bankers that that is the very type of loan that
the banks make, because they loan with regular safeguards, after
investigation and after survey.
Senator TOBEY. They are a little more conservative than you are.
Mr. FINUCANE. The International Bank?
Senator TOBEY. Yes.
Mr. FINUCANE. Yes; I would say so.
Senator TOBEY. Certain limitations as to the loaning power are very
conservative—you will agree to that ?
Mr. FINUCANE. Yes; I will agree to that. We have said in the report that the borrowing was a little too automatic in the fund, but
I do believe that our case would be better stated by Mr. Dief endorf.
Senator TOBEY. Before you go, one more question. Isn't it a fact
that you have in your makeup as a banker, a little bit of the spirit of
perfection? This is said in all kindness, and it is commendable, I
think, that you have the spirit of perfection, haven't you, as a banker?
Mr. FINUCANE. Oh, no; I have to disagree with you there. I like
so much the idea that I am human and I cannot be a perfectionist.
I w^ould not be a perfectionist if I could. I am scared to death of
perfection. I have never had any ambitions along that line.
Senator TOBEY. Well, speaking of perfectionists, I cannot resist
telling a little story. It is Senator Barkley's story, but I would like
to tell it.
A minister was preaching to his congregation. Finally he said, "Of
course, no one has ever seen a perfect man." A little fellow in the
back got up and said, "I don't quite agree with you." The minister
said, "Well, did you ever see a perfect man?" The little fellow said,
a
No; but I have heard of one. It was my wife's first husband."
Senator BARKLEY. I won't press you on these matters if you feel
Mr. Diefendorf can speak in more detail about them, but you mentioned a while ago that your association believed that this fund ought
to be held in abeyance until these countries had stabilized their own
currency within their boundaries. We might be able to do that because most everything now seems to be tied to the dollar, but how can
these other countries in relation to international trade, which we are
seeking to promote as part of the program, how can they get of their
own volition and within the vacuum of their own existence stabilize
their currencies with respect to international trade 1




250

BRETTON WOODS AGREEMENTS ACT

Mr. FINUCANE. They cannot do it the whole distance, but they can
stabilize their governments, for instance. They can organize their
governments.
Senator BARKLEY. Of course, there is a difference between stabilizing a government and stabilizing currency.
Mr. FINUCANE. Well, they tie very closely together.
Senator BARKLEY. They do. What we'are really afraid of is that
these governments will become more unstable than their currency.
Mr. FINUCANE. I think we should have a clear view of what these
governments are going to be.
Senator BARKLEY. And in the meantime, what happens, while we
are waiting for France and Belgium, which seem to be in some trouble
right now, and maybe Italy and China and all those countries when
they get through fighting ? I suppose you mean some form of government would be established and kept in power which could be relied
on year after year ?
Mr. FINUCANE. Yes.
Senator BARKLEY. HOW

long is it going to be before that can take
place and what is going to happen before it does take place?
Mr. FINUCANE. It can't take place very quickly.
Senator BARKLEY. YOU say it can or cannot ?
Mr. FINUCANE. It cannot; and they cannot go the whole distance
without help from us. They probably cannot go half or part of the
distance without help from us. Maybe that help has to be given
in the form of gifts, but we have to help them some way or another,
but we think they should progress a certain distance along the road
before we attempt this stabilization fund in order to make the thing
ultimately successful.
Senator FULBRIGHT. Mr. Chairman, I would like to ask a question
just on one point. In your second point you said safeguards were
not adequate to protect the fund. One of the witnesses said here the
other day that he thought the fund's resources were better safeguarded
than the bank and there was less likelihood of loss to the fund.
His theory was that we have a prior lien on its resources. Would
you care to comment on that second point and how do you think we
would lose our investment in the fund?
Mr. FINUCANE. I would rather not comment on that question except
to say we are in disagreement with that opinion.
Senator FULBRIGHT. That is, you don't think it is better protected
than the bank ?
Mr. FINUCANE. NO ; we do not.
Senator FULBRIGHT. Would you care to say why ?
Mr. FINUCANE. NO ; I would rather not get into those things.
Senator TAFT. Mr. Finucane, one question I wanted to ask. I don't

quite see why a part of the bank has any separate problem in stabilization. It seems to me—I don't quite see why this board, going to a
place like Czechoslovakia, for instance, should not consider the whole
situation of Czechoslovakia, consider how much should be loaned,
perhaps by the bank, perhaps by the United States, and what restrictions should be removed, as well as stabilization, all at once. I cannot
quite see why the same board should not deal with both problems.
Aren't they intimately related ?
Mr. FINUCANE. They are, and our report is in agreement with that
point of view.



BRETTON WOODS AGREEMENTS ACT

251

Senator TAFT. In other words, the problems that arise are individual national problems, and in each case you have three or four
things to be solved as to that nation; isn't that true ?
Mr. FINUCANE. That is true. That is why we considered consolidation of the governors, at least from our point of view, from the United
States' point of view, to be a step in that direction. All I can say is
that our report is in agreement with the point of view you have just
expressed.
The CHAIRMAN. Are there any other questions?
(There was no response.)
The CHAIRMAN. Thank you very much, Mr. Finucane.
STATEMENT OF CHAELES H. DIEFENDORF, PRESIDENT, MARINE
TRUST CO., BUFFALO, N. Y.
The CHAIRMAN. YOU are the president of the Marine Trust Co.,
Buffalo?
Mr. DIEFENDORF. Yes, sir. I would like to say, Senator, that I believe implicitly in canceling the old World War I debt. I didn't have
a chance to get myself in on that conversation. I am very much in
favor of canceling of the World War debt just as quickly as possible,
because while I think most everybody today considers that they are
canceled, probably as to their effect in the past they probably were a
very bad psychological factor on the whole question of stabilization.
The CHAIRMAN. YOU don't think it ought to be canceled in the income tax ?
Mr. DIEFENDORF. The income tax?
The CHAIRMAN. Yes.
Mr. DIEFENDORF. Of course,

that would be a very difficult question
for me to answer.
Senator BARKL«EY. That was a facetious remark in the first place.
Mr. DIEFENDORF. I think from the standpoint of our report the
hardest thing, the thing that bothered me most, and I think bothered
others, in studying this situation, was the transition period and the
possibility of this fund having difficulties in that particular period.
I think when we look ahead to the period after the war we certainly
can be assured that there is going to be a great amount, a tremendous
amount of purchasing in this country by foreign nations. There is
going to be a greater demand for goods. There is going to be a one-way
movement, very much. The balance is certainly going to be in our
favor.
Now, I don't see how a fund that depends for its success on balanced
payments internationally can get off to a fair start at a time when that
kind of a situation prevails. I am very much bothered over the fact
that if we go into the fund at this time without postponing, there will
be a great hope in the world over its success, and I am very anxious
when we go in that we go in at a time when it has a reasonable chance
of success.
I don't like two strikes on it when we start.
Senator BAREXEY. YOU don't think that there will be any fund unless we go in, do you ?
Mr. DIEFENDORF. Well, no; I rather think not. I think everybody
is waiting to see what we do.
75673—45




17

252

BRETTON WOODS AGREEMENTS ACT

Senator BARKLEY. For us to say we won't go in it would mean that
nobody would go in and there wouldn't be any fund.
Mr. DIEFENDORF. I don't know. Of course, I assume ways could
be found to postpone without breaking up the whole situation.
Senator BARKLEY. AS long as we are postponing there is nobodygoing to rush into it. If we postpone, everybody will.
Mr. DIEFENDORF. Yes; that is right. Maybe that would be just as
well, if everybody postponed, at least until such time as we had gotten
by these difficulties that are coming after this war.
Senator BARKLEY. Might a very much smaller fund be sufficient for
purposes of temporary stabilization?
Mr. DIEFENDORF. I have the feeling that may be so, but I don't think
that is important if the fund maintains its funds and does not lose
them. After all, whether it is large or small, we still have our interest in it, and what we are worried about is whether dollars flow out
in a period of unusual conditions and create chaos in the situation.
Senator MURDOCK. Mr. Chairman, may I ask this short question?
The CHAIRMAN. Yes.
Senator MURDOCK. IS

there any doubt in your mind but what there
is need for a stabilizing agency immediately after the war?
Mr. DIEFENDORF. NO; there is no doubt in my mind, and I think
that can be taken care of in the bank through stabilization loans. I
think it can be taken care of to better effect, perhaps, than in the fund.
Senator MURDOCK. But you do agree, if I understood your answer,
that probably never before in the world was there a time which demanded a stabilization agency or fund more than the time right now,
or immediately after the war comes to a conclusion ?
Mr. DIEFENDORF. For those that need it. I agree with that. On
the other hand, I think we have to remember that sometimes we move
too fast for stabilization and it doesn't last. That was the effect
after the last war.
Senator MURDOCK. Your approach, if I understood you, is this:
That rather than decide it on the fund, because of the need for it,
you want to decide the question on the chances of success of the fund.
Mr. DIEFENDORF. Eight. That is correct.
Senator MURDOCK. YOU think there are greater chances of success
by postponement; is that correct ?
Mr. DIEFENDORF. That is correct.
Senator MURDOCK. Isn't that usually—and I say this with all due
respect to the banking fraternity—isn't that and hasn't that always
been the bankers' approach to these questions ?
Mr. DIEFENDORF. Well, Senator, I have only
Senator MURDOCK. That when you are needed most you are extremely elsewhere ?
Mr. DIEFENDORF. I don't think I can agree to that. I have no such
ideas myself. I don't know what always has been the bankers' approach. Many things are said about bankers, maybe some of them
are true. I am not here to defend bankers or talk about bankers.
Senator MURDOCK. And I am not here to cast any aspersions on
bankers, but it seems to me from what we have listened to from the
previous witnesses, and from the statement you make now, you agree
that there is a terrific need for stabilizing things, for a stabilizing
agency or fund, but notwithstanding the great need for that, we should
back away from it until success is more assured.



BRETTON WOODS AGREEMENTS ACT

253

Mr. DIEFENDORF. Well, I think that is a tremendously important
thing in the world; that we should be assured of success, if we can be.
Senator BARKLEY. Isn't there any way to assure success without
bringing about stabilization, and if that can be brought about sufficiently before we go into the Fund to guarantee its success, will the
Fund ever be needed ?
Mr. DIEFENDORF. Well, I think the fund is an international arrangement for handling exchange that certainly would be a good one.
Senator BARKLEY. If everybody is going to get stable without it,
what is the use of creating it ?
Mr. DIEFENDORF. We are not talking about the ideal situation. We
are talking about the possibility of arriving at a place where the fund
has a better chance of success than it does in the transition period of
some year nobody knows how many. We know the situation is difficult for a fund that depends on balances of payments. I would say
the same thing about any other plan at this time. I supose, if we go
back to the thirties, why was the gold standard in difficulties ? Why
did gold flow into this country causing imbalances? Because of all
the difficulties in the world. If that can have that effect on the gold
situation, why cannot it have the same effect on the dollar situation
within the fund ?
Senator BARKLEY. DO you believe it would be easier to prevent the
flight of the dollar to which you referred a moment ago, with or without this fund ? If you say without it, I would like to get your reasons.
Mr. DIEFENDORF. The flight of the dollar ?
Senator BARKLEY. Yes. Maybe it was the previous witness. I
thought you used that as a reason why in the transition period the
fund ought not to be created, because you were afraid the flight of the
dollar would be the result.
Mr. DIEFENDORF. I was talking about the fact that dollars would
be used to purchase great amounts of goods in this country in that
period in order to catch up and it would, of course, come into competition
Senator BARKLEY. Wouldn't that happen anyway, whether there is
a fund or not ? How will the absence of the fund contribute to preventing the flight of the dollar ?
Mr. DIEFENDORF. I don't think the absence of the fund does. I
think the conditions contribute to that situation. I think first we must
take care of the questions of tariff and international stabilization.
Senator BARKLEY. Of course, they all dovetail together. We are in
controversy over in the Senate right now about tariffs.
Mr. DIEFENDORF. I understand that.
Senator TOBEY. That has been resolved, though—partly resolved.
Senator BARKLEY. I hope so. My idea has been that one of the
things that makes this thing needed is the transition period.- If we
can wait until that is over and everybody gets stable—we understand
that water seeks its own level and maybe currencies will seek their own
level—after that has gone through a 4- or 5-year process, whatever
it happens to be, maybe we won't need it at all. ,
It seems to me, during the transition period is just when we need it
more than any other time.
Mr. DIEFENDORF. Well, I think there is a difference of opinion about
that.



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BRETTON WOODS AGREEMENTS ACT

Senator BARKLEY. Well, just one more question. I didn't want to
interrupt your statement. You mentioned the fact that the bank
could do this. The bank couldn't do it under the present agreement ?
Mr. DIEFENEOEF. Well, under the amendments that have been put
into the bill the bank will take over long-term stabilization loans.
Senator BARKLEY. I mean the bank under the agreement entered
into by these 44 nations at Bretton Woods could not engage in the
stabilization of currencies.
Mr. DIEFENDORF. I think that is correct. There is some question
about it which they tried to correct in these amendments.
Senator TAFT. May I say that Mr. White testified yesterday that
they could definitely under the bank undertake stabilization loans.
He said that yesterday afternoon.
Senator BARKLEY. Only to a limited extent. It could not, certainly,
cover the field provided for in the fund.
Senator TAFT. Not a general stabilization fund of all 44 nations,
no; but the question as to whether they could participate in solving
any nation's problem, and could participate also in the stabilization
loan is perfectly clear.
Mr. DIEFENDOEF. I think there is a provision in the agreement as to
the bank being allowed to make other kinds of loans, other than those
specified, under special circumstances.
Senator BARKLEY. If the bank was authorized to do what the
Stabilization Fund was authorized to do, it would take a new agreement, wouldn't .it ?
Mr. DIEFENDORF. I think that is brought out in the bill in these
amendments. As you know, there are certain amendments here that
will bring up that whole question.
Senator BARKLEY. These amendments in the bill passed by the
House do not require a reassembling of the nations.
Mr. DIEOFENDORF. Of course, that is right, and the answer to that is
that we do not know what the outcome of that will be. They are directives to the fund and the bank to do certain things. If they don't do
them, we are back where we started, but it raises the question you have
talked about, Senator. It raises the question of long-term stabilization loans in the bank. It raises the question of limiting the stabilization operation of the fund to temporary assistance to members, et
cetera. It seems to me that this recognizes and admits that the fund
may make long-term loans or at least there is a question in somebody's
mind whether or not the fund can make long-term loans, and the
question, of course, in the bank of the stabilization loans.
Now, having admitted that we are asking for a correction of it—
we are not asking for the 44 nations to meet, but we are asking our
representative to get art interpretation, and if the interpretation is not
as we understand it, we are then asking for an amendment. Nothing
is said as to what happens if we don't get the amendment. If we don't
get the amendment we are back where we were before with the same
question that has been raised and the admission by somebody, whoever
put these amendments in, that there is that question involved in the
whole picture. I think I am correct in that.
Senator TAFT. Mr. Diefendorf, while you say you think the bank
may make stabilization loans, you don't claim they can run the stabili-




BRETTON WOODS AGREEMENTS ACT

255

zation fund and stabilize at one time 44 currencies, which is something
you say cannot be done at all.
Mr. DIEFENDORF. No; they couldn't do that. They could make loans
for the purpose of stabilization.
Senator TAFT. TO particular nations to help them stabilize?
Mr. DIEFENDORF. That is right under whatever safeguard they
wanted to put in.
Senator TAFT. That is what you were thinking ought to be undertaken rather than a Nation-wide effort to stabilize all currencies ?
Mr. DIEFENFORF. That is what I think should be done until such
time as conditions are different in the next few years.
Senator MILLIKIN. IS that another way of saying you believe in
selective stabilization ?
Mr. DIEFENDORF. Yes; that is another way of saying it. That is why
I say if it is in the bank we could make stabilization loans where we
believe they are proper.
Senator MILLIKIN. YOU don't object to stabilization. Your contention is that there are some thing—some countries that are so disorganized and in such chaotic condition that to say you will stabilize
their currency is to say something that is false? That is, if you accumulate these false things far enough you begin to bog down and put
a burden on international trade and international relations.
Mr. DIEFENDORF. That is correct, I think.
Now, let me say also that this has never been called officially a stabilization fund. It has been called the Monetary Fund. The question of
stabilization^ something that we have—I mean we are talking about
elimination of controls and exchange controls and all other things in
the fund, which we all, of course, are for.
The CHAIRMAN. Whatever you call it.
Mr. DIEFENDORF. But we don't know whether or not—excuse me,
Senator, I didn't mean to interrupt you.
The CHAIRMAN. Pardon me.
Mr. DIEFENDORF. Whether we like it or not, there is a period of X
number of years in which you are going to have exchange controls anyway. It does not eliminate them wholly.
Senator TAFT. Have you a statement, Mr. Diefendorf?
Mr. DIEFENDORF. NO. I have just some notes.
Senator MILLIKIN. Another question, Mr. Chairman, please.
The CHAIRMAN. All right.
Senator MILLIKIN. Even if you did not have the fund, that would not
preclude making selective agreements with countries that were worth
the risk, would it ?
Mr. DIEFENDORF. It certainly would not.
Senator TAFT. AS a matter of fact, what do you think as to the
English, as to the key character of the settlement With England, and
England's difficulties?
Mr. DIEFENDORF. Well, I think that is one of the great problems of
the world today and a very hard one to know the answer to. I have
the feeling that when 'we are talking about international settlements
and international stabilization, and we are thinking of a country that
has some $12,000,000,000 of debt as a result of the war, that that particular problem ought to be corrected in some way or ought to be dis-




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BRETTON WOODS AGREEMENTS ACT

posed of as a part of the international settlements, because I think
it is a menace to international settlements or international situations.
It is just as much of a menace hanging over the whole question as were
our own war debts which have lasted all these years. We now say
they were a menace, and I think they were. We would have been far
better off had we solved those and corrected that situation earlier.
Today England is in that some position. Now, that has a bearing.
I don't know what the settlement of those debts will be. I don't think
anybody knows, perhaps.
Senator MILLIKIN. Mr. Chairman, may I ask a question ?
Mr. CHAIRMAN. Yes.
Senator MILLIKIN. IS

this not correct: That if you set up a currency
exchange value with a country that is so chaotic that your valuation
necessarily must be arbitrary, does that not have the effect of making
the entire economy of the country arbitrary so long as that relationship is maintained?
Mr. DIEFENDORF. Well, I want to get this clear. In the event that
we are
Senator MILLIKIN. If you have an arbitrary value on your currency,
that necessarily affects the internal economy of the country, does it
not?
Mr. DIEFENDORF. I should think so; yes.
Senator MILLIKIN. Does it not follow, if it be arbitrary at the initial
point, that it keeps the entire country's economy on an arbitrary basis?
Mr. DIEFENDORF. I would think so.
Senator MILLIKIN. Therefore, unless you can control the entire
economy of the country, you cannot in the end maintain your arbitrary monetary valuation?
Mr. DIEFENDORF. I think that is correct. Of course, this whole
question of fixing the values of currencies in this fund is going to be a
very difficult one, I should think. Presumably it has to be by agreement. With many of the countries in the shape they are in today,
I do not know how anybody is going to decide what the currencies
are worth; and if they set an arbitrary value, I question whether
that value will stand. Of course, the fund will take care of that,
I assume, by the measures, the means that have been set up.
Senator RADCLIFFE. If I understand correctly, you feel that the general functioning contemplated by this fund is desirable, but that you
think its application at this time is premature.
Mr. DIEFENDORF. That is correct, sir.
Senator RADCLIFFE. And that, of course, is based on the assumption
that if there is an interval of time there will be certain changes in
conditions which would prepare us for a status when the stabilization
might become effective ?
Mr. DIEFENDORF. Yes, sir.
Senator RADCLIFFE. And I

think you have mentioned the fact that
you feel that the International Bank's operations could be something
of a factor in that respect.
Mr. DIEFENDORF. That is correct.
Senator RADCLIFFE. Would you care to comment on any other factors
which in your opinion might play more or less an active or even a dominant role in preparing us for this status when you think such a fund
could become effective ?



BRETTON WOODS AGREEMENTS ACT

257

Mr. DIEFENDORF. Yes. I think that what we are talking about are
those things which create lack of confidence and those things which
create lack of balance. Now, the lack of balance is created, as far as
we are concerned, by the fact that we sell more than we buy; not only
that, but in the period of transition we are going to do a great deal
more of that. The lack of confidence would be caused by the fact
that many nations in the world, as far as we can see now, are going to
be some time in establishing stable governments and stable conditions, which is the only basis, I believe, on which you can have any
real stabilization.
Senator RADCLIFFE. Well, if the fund is discarded for the time being
at least, but the bank is put into operation, do you contemplate
any other forms of legislation which you think might be necessary to
carry out these purposes, or do you feel that economic processes would
more or less adjust themselves without legislation?
Mr. DIEFENDORF. NO, I do not.
Senator RADCLIFFE. In other words, have

you any legislation in substitution for this fund in case we do not adopt the fund ?
Mr. DIEFENDORF. Legislation in substitution for the fund ?
Senator RADCLIFFE. Yes; aiming at bringing about a stabilization
or better economic international relations or conditions, or whatever
may be the general objective.
Mr. DIEFENDORF. Well, I believe that we have brought out that we
believe the war debts should be eliminated, of course, and the Johnson
Act might be repealed in order that the bank might operate. Of
course, we get into questions of tariffs, and that has always been a
very difficult political question, but it would seem to me that we have
to recognize the fact that if we can bring more goods into this country
without hurting our own economy, we should do it. And I do notpretend to be the one to say as to whether that can be done or not. If
we cannot, and we are going to continue to operate in the world in
which we are going to be selling so much more than we buy, and
having only as offsets our invisible imports such as shipping costs,
insurance premiums, foreign remittances, travel expenditures, etc.
and not large visible imports, then the fund would have very little
chance. I think any other form has very little chance of arriving
at stabilization until those things are corrected.
Senator TAFT. Mr. Diefendorf, will this fund eliminate exchange
restrictions and the other hindrances to trade %
Mr. DIEFENDORF. It certainly does not eliminate exchange controls
during the period of from 3 to 5 years; on the contrary, it allows
every country to keep them on, and probably rightfully so, for the
very reasons that I say that the fund cannot operate: for the reasons
that we will be in an unusual and unbalance period after the war.
Senator TAFT. It will actually authorize the imposition of a lot of
new exchange restrictions, will it not, in occupied countries ?
Mr. DIEFENDORF. Necessarily, that is correct.
Senator TOBEY. That is a fair statement you just made, I think.
Mr. DIEFENDORF. Thank you, sir.
Senator TAFT. Does it eliminate the dangers of competitive devaluation of currencies?




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BRETTON WOODS AGREEMENTS ACT

Mr. DIEFENDORF. Well, of course, that is quite a question. It allows
the devaluation of currencies to the extent of 10 percent without the
consent of the fund. Beyond that point the consent of the fund is
required. I think there is probably a difference of opinion as to how
far that might go. We have statements out of England where it
has been said, I think, by the Chancellor of the Exchequer, that
they would of course confer with the fund, but if they didn't get
consent they would do it anyway. I think that statement is on record.
Senator TAFT. Well, that statement that says that
Mr. DIEFENDORF. I do not think these are very vital things, though.
Senator TAFT. The statement that the fund—I think it says that
they cannot object on the ground of political policy
Mr. DIEFENDORF. That is correct.
Senator TAFT. Or something of the sort, to a further devaluationMr. DIEFENDORF. That is correct.
Senator TAFT. On the ground brought about by the government's
policies.
Mr. DIEFENDORF. Yes; they cannot object on that ground.
Senator MILLIKIN. Senator, you read the statement of Lord Keynes
yesterday, the guts of which was that they will do whatever is necessary to do to protect their own position.
Senator TAFT. Yes; I think Lord Keynes has stated that very
clearly.
Mr. DIEFENDORF. That is right. And that was along the same lines
as Sir John Anderson, the Chancellor of the Exchequer, made a
statement ?
Senator TAFT. Will you comment on that ?
Mr. DIEFENDORF. A little more concise.
Senator MILLIKIN. A little more elegantly than I have just stated it.
Senator FULBRIGHT. Does that mean that they pay no attention to
the agreements of the fund ? Is that the implication of this ?
Mr. DIEFENDORF. I do not want to make such an implication, Senator. That was the way it read.
Senator FULBRIGHT. That is your interpretation?
Mr. DIEFENDORF. My statement is that if Britain thought it was in
their own interests—and I don't know that I disagree with them—if
they thought it was in their own interest and nobody was going to
agree with them, they probably would go ahead. Perhaps they would
get the consent of the fund under those circumstances.
Senator FULBRIGHT. If we assume the nation's won't live up to their
agreement, it is obvious that none of these are worth while, but we
have to assume that they will perform their agreement; that if they
agree to do this they will do it.
Mr. DIEFENDORF. I certainly do not want to accuse any nation of bad
faith.
Senator TAFT. My understanding of Lord Keynes's statement was
that he interpreted the fund to mean that they could do" exactly that,
because
Mr. DIEFENDORF. Because of the provision under which
Senator TAFT. Which permitted or which says the fund can't interfere with political policy. I didn't see Sir John Anderson's statement, but certainly Keynes's wasn't in defiance of the fund; it was an
interpretation of the fund that it permitted them to do that.



BRETTON WOODS AGREEMENTS ACT

259

Senator RADCLIFFE. That would certainly leave some discretion
in the fund; it wouldn't be a matter of arbitrary caprice on the
part of some countries to make allocations of this nature in an attempt
to get by with it. I mean the fund has some discretion, I would take
it, anyhow; does it not ?
Mr. DIEFENDORF. That is correct. And I would say, and I made the
statement, that I thought probably before you ever got to any such
point as that you would find a way to meet it.
Senator FULBRIGHT. I S that around the problem of the fundamental
disequilibrium ? Is that what you are talking about, Senator Taft ?
Senator TAFT. Yes.
Senator FULBRIGHT. I mean that is the problem which is under
discussion ?
The CHAIRMAN. Are there any other questions ?
Senator FULBRIGHT. If you are through, I would like for him to
comment on the same point about No. 2, that the safeguards are not
adequate to protect the fund's resources. Just how do you feel that it
would be dissipated ? Assume that the fund would become bankrupt.
What would be the process ?
Mr. DIEFENDORF. Well, I haven't said that the fund would become
bankrupt. I have said that I did not think there were safeguards that
would protect the fund against the disequilibrium that I think will
prevail in the postwar period, and therefore I think there would be
great withdrawals of dollars, on the fund.
Senator FULBRIGHT., We know there would be. That is why we
set it up, for the purpose of having withdrawals. But, as I understood, the No. 2 point in the bankers' report as read by Mr. Finucane
was that the safeguards are not adequate to protect the fund. In
other words, it will bog down, and it will soon come to a point where
it ceases to function, and there will be the loss of our investment in it.
Is that the proper interpretation of that second point ?
Mr. DIEFENDORF. I think that is the point they made; yes.
Senator FULBRIGHT. I would like to have your idea as to how that
is going to come about. Just give an example of how that operates,
because we have been told different from that, and I wanted to compare the two views.
Mr. DIEFENDORF. The safeguareds are in the main, of course, the
provision under which you can draw only 25 percent in the year, and I
asume that was put in there to protect the fund. I can think of no
other reason. The other safeguards are those which have to do with
the—can you give me a steer on what those other safeguards are
(addressing Mr. J. H. Eiddle) ?
Senator TAFT. I will read the first one:
The member desiring to purchase the currency represents that it is presently
needed for making in that currency payments which are consistent with the
provisions of this agreement;

Mr. DIEFENDORF. That is right. Well, there you have a representation. And of course, we have to remember one thing: The fund
allows its use for the purpose of correcting an adverse balance of payments. I think we never want to get confused and think of the fund
as making individual loans in this regard or that regard. We are
talking about an adverse balance of payments. Now, many things




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BRETTON WOODS AGREEMENTS ACT

go into the question of an adverse balance of payments. There is the
question of trade, an adverse balance of trade. There may be a
capital movement, although there is a prohibition against that. There
may be many other things. I think it is very difficult for any fund or
any management of any fund to be assured that in that adverse balance of payments is just the current movement. A lot of things—
I mean we have always found it difficult at least to tell just what is
in an adverse balance. Therefore it seems to me that it is possible that
the fund would be drawn on very heavily in this period of
Senator FULBRIGHT. Well, just a moment.
Mr. DIEFENDORF. Now, when we get to the point of whether or not
all the dollars are going out of the fund, I don't know that I am ready
to state that that would be the fact. I think it is a possibility. Of
course, if all the dollars should go out of the fund, or before all the dollars get out of the fund, they would put into effect the scarce currency
provisions against the dollar. Now, that particular provision gives the
fund the right at that time to allow sanctions against the dollar: In
other w^ords, against our trade. I know that everyone says that is no
different than would happen if we didn't have the fund. But we
become a party, however, to an arrangement under which that can be
put into effect; and, of course, the alternative——
Senator FULBRIGHT. Well, wouldn't you want it to be put into effect?
Mr. DIEFENDORF. Of course, the alternative to that is that we put
up more dollars.
Senator FULBRIGHT. We would want it to be put into effect in
order to prevent this continued outflow. Somewhere it has got to
be balanced, either by loan or default, one or the other, or you would
have no fund.
Mr. DIEFENDORF. In the past we have always acted on our own in
that connection and have felt that we had freedom of action.
Senator FULBRIGHT. But —
Senator TAFT. In other words, if this fund goes in and people put
in restrictions, if this scarcity provision goes in and they put in restrictions, they can put it to an extent where they can't even pay
their debts to us, as I read the restrictions on scarce currency.
Mr. DIEFENDORF. Well, there is difference of opinion on that. I
think that you could give it that interpretation.
Senator TAFT. Then we are bound; whereas, if there is no fund
and somebody begins to do that, we raise thunder with them.
Mr. DIEFENDORF. That is correct.
Senator TAFT. And there are plenty of things we can do to them,
so that we can at least secure a selective field throughout the world
where we can operate; whereas under this we agree to be indicted by
the world, and we invite every nation, and we remove any possibility of
our protesting if a nation puts any restriction on the dollar.
Mr. DIEFENDORF. We accept the Keynes principle that the creditor
nation is responsible if anything of that kind happens.
Senator TAFT. Yes.
Mr. DIEFENDORF. And that is a new idea.
Senator FULBRIGHT. NOW, pursuing that thought a little more,
the Senator just mentioned if it was a debt they can put restrictions
on paying it. As I understand the fund, they cannot restrict paying
what they owe to the fund, because the fund already has it. That is,



BRETTON WOODS AGREEMENTS ACT

261

they have the currency itself. That was one of the points, that the
fund is better protected—its resources are—than the bank, because
the bank is just a regular loan, and if they put a restriction on the
transfer of the currency to pay it, it just restricts it, but they cannot
restrict the payment of what they owe to the fund. Is that your
understanding of it?
Mr. DIEFENDORF. I think you were talking about debts outside of
the fund.
Senator TAFT. Yes, outside.
Senator FULBRIGHT. Well, it would be the bank debt. The bank is
a different debt from the fund
Senator TAFT. Oh, no; but there may be
Senator FULBRIGHT. Or any other loan.
Mr. DIEFENDORF. The debt to the bank is purely—I mean there is
no debt to the bank in the sense that we think of debts. There is
currency deposited in the bank or credit given in currency, and they
have that in the particular—whatever particular country draws dollars puts up its own currency against it.
Senator FULBRIGHT. In the bank ?
Mr. DIEFENDORF. In the fund.
Senator FULBRIGHT. I am just making the distinction -between the
bank and the fund. As I understand it, the fund actually has the
currency, and it is a superior resource or a superior lien to an ordinary
loan of the bank.
Mr. DIEFENDORF. I think that is right. That is correct.
Senator FULBRIGHT. Therefore wouLd you agree that the resources
of the fund are better protected than the bank ?
Mr. DIEFENDORF. I would not agree that they are better protected,
because, in the first place
Senator FULBRIGHT. That is what I was trying to get your answer
to. Why is it weaker and more likely to fold up than the bank ?
Mr. DIEFEKDORF. I will try to tell you what I think about it. Of
course, the bank—when we talk about the resources of the bank being
protected, we are talking about how good the loans are that we make.
Senator FULBRIGHT. Yes.
Mr. DIEFENDORF. We are talking about the ability of the country to
repay in the currency which it borrowed.
Senator FULBRIGHT. Yes.
Mr. DIEFENDORF. We are talking about a bank which is set. up, certainly from the standpoint of the act itself, with all kinds of safeguards
and with great care to insist on investigation, and so forth. I think
those are very strong provisions in the bank, the strongest that I
have
Senator TAFT. Requiring proof of the adoption of a sound fiscal
policy by the Government itself.
Mr. DIEFENDORF. Many things that are very strong, and which would
seem to me to safeguard the loans that will be made in the bank. Now,
the bank in the main is going to be a guaranteeing bank rather than a
lending bank.
Senator FULBRIGHT. Yes.
Mr. DIEFENDORF. Therefore, you not only have the question of the
investigation by the bank, but you also have the question of the investigation by those that make the loans. Now, we assume that some



262

BRETTON WOODS AGREEMENTS ACT

banker in the neighborhood is going to make a loan to XYZ country
somewhere abroad. He first investigates the loan, and after he has
investigated the loan, and if he wants to take it to the bank, the bank,
too, investigates the loan, not only from the standpoint of whether
or not it is a particularly good project or a particularly productive
project, but also from the standpoint of the chances of repayment and
the ability to get exchange with which to pay them. And let us not
forget that the question of the repayment of debts to us is a matter of
getting dollars to pay us, in most cases, and not just straight default on
their ability to raise their own currency .
Now, in the fund we are talking about a fund that has their own
currency in it, and it is worth nothing to us unless we use it. We are
not going to be using this fund. We are not going to have any adverse
balance of payments, and that is the major factor that has to be present
before the fund can be used. The United States, as far as any of us
can see, has no adverse balances ahead of it.
Senator TAFT. Well, isn't it true <
Mr. DIEFENDORF. Do I make myself clear, Senator?
Senator FULBRIGHT. Except it doesn't quite go on to the final conclusion as to how this fund will lose its money. I mean, as I understand it, when this country comes in for an advance it always must
keep a certain amount with relation to gold. That is, if it depreciates
its own currency it has to put more currency in, hasn't it? So
Mr. DIEFENDORF. Of its own currency; yes.
Senator FULBRIGHT. Of its own, which bears a certain relation to
gold; isn't that right ?
Mr. DIEFENDORF. That is correct. Now, we are not saying—I
haven't said, and I don't know of anybody that has said that the fund
would lose its currencies. It has been said that it might be short of
dollars and have a lot of other currencies. The question of the value
of those currencies is one of the things that we have.
Senator TOBEY. Well, it has been said repeatedly from the very facts
of the arrangement that we were giving money away and throwing
money away. You certainly do not concur in that statement ?
Mr. DIEFENDORF. I certainly do not. But I do not know the value
of all the currency that may be in there.
Senator TOBEY. Nobody does yet.
Mr. DIEFENDORF. That is correct.
Senator FULBRIGHT. Because, of course, we have all admitted—
that there are difficulties in determining the value of the currencies,
and that probably the most difficult problem, in the initial stages, of
any, is how to set that; but I assume that surely there are some, at
least, New York bankers with enough sense to determine that particular question.
Mr. DIEFENDORF. I would question that.
Senator FULBRIGHT. Don't you think there are, even with the leeway
of 10 percent?
Mr. DIEFENDORF. Under the conditions that I think are apt to prevail
in the immediate period after this war, I do not think anybody is good
enough to do it.
Senator FULBRIGHT. Well9 there will be risks; of course, we know
that.




BRETTON WOODS AGREEMENTS ACT

263

Mr. DIEFENDORF. I am not talking about all countries, Senator; I
am talking about some countries, of course.
Senator MILLIKIN. Mr. Chairman, may I ask just one question,
please ?
The CHAIRMAN. Certainly.
Senator MILLIKIN. I would like to probe as to the possible effect of
our getting into a scarce dollar position. At that point, as I see it,
a virtual embargo is put upon our exports, and we have invited it under
the terms of the agreement and under the circumstances that call
it forth.
Is it not the effect—would it not be the effect of that to compel
those who had been buying from us to find other sources from which
to buy, and thus build up a great crop of competitors with things that
we have been exporting ? Countries have been buying generators from
us, automobiles from us, machine tools from us, and they would then
be compelled to buy them from Sweden, from Great Britain, from Belgium, and so forth and so on. You are establishing an entirely new
channel of trade relationships which in the end mignt seriously affect
our long-term exporting habits.
Mr. DIEFENDORF. Well, that would be the purpose of it, of course,
to cause the buying to go elsewhere, because of the fact that that would
be the only way you could correct the situation.
Senator MILLIKIN. Yes.
Mr. DiEFENDOiSF.- That, of course, it can be said, I suppose, could
happen under any kind of a system. If we are selling so much more
than we are purchasing, why, the dollar gets into that position anySenator MILLIKIN. But it does not happen
Mr. DIEFENDORF. But we have an alternative, of course, of putting
up more dollars.
Senator MILLIKIN. Yes? we can ante up again.
Mr. DIEFENDORF. That is correct.
Senator TAFT. A poker game.
Senator MILLIKIN. Under normal conditions the effect of it does
not happen in mass and at once, and you have time and opportunity
for adjustments of various kinds which might alleviate your position
considerably.
Mr. DIEFENDORF. That would be correct.
Senator TAFT. Well, you suggest that, while $2,750,000,000 is stated,
the conditions are such that it isn't very long before we will be under
probably a demand to add to that contribution to the fund ?
Mr. DIEFENDORF. Well, I haven't said that.
Senator TAFT. Or lend the fund additional money ?
Mr. DIEFENDORF. I have the feeling—of course it would take a long
time for it, several years—if you had a steady drain of dollars, it
would take several years to come to the point where the fund had no
dollars. My own feeling is that psychologically if it continues, if
the balance continues to run that way, long before you had gotten to
the point where the dollars are out there will be a great many questions
about the success of the fund in the minds of many people.
Senator TAFT. And also they can declare currencies scarce before
it actually runs out, can't they ?
Mr. DIEFENDORF. Well, I don't know that they could. Maybe they
can. I would question that they would.



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BRETTON WOODS AGREEMENTS ACT

Senator TAFT. Isn't there this very important difference with the
fund: That the drafts on the fund are practically automatic, whether
a nation is a good risk or not, whether the nation needs money or not,
so that a nation like China, with a quota of $550,000,000, can draw
$137,000,000 every year almost as a matter of course?
Mr. DIEFENDORF. Well, I think there are some safeguards that protect us as to China.
Senator TAFT. Well, what are the safeguards? That is what I
would like to know.
Mr. DIEFENDORF. I think that the fund has some discretion in that
connection.
Senator TAFT. Well, do you think so ?
Mr. DIEFENDORF. On a country like China, for instance, I think
there is a provision in there that protects us from a country that has
been occupied.
Would you like to comment on that yourself ?
Mr. J. H. KIDDLE. Well, there is one provision there that the fund
can postpone exchange transactions with a member if the circumstances are such that in the opinion of the fund they would lead to
the use of the resources of the fund in a manner contrary to the
purposes; and it has been stated by some of these experts that China,
for example, is in a terribly chaotic condition. But I think the
Senator is entirely right that the fund does set up the presumption
•
Mr. DIEFENDORF. That is right.
Mr. RIDDLE (continuing). That these members have a right to borrow, and it is up to the fund to prove that they do not have the right
to borrow.
Senator TAFT. That is why all the nations at Bretton Woods were
rushing in to get as big a quota as possible in the fund, and as small
a quota as possible in the bank, isn't it, because they regarded the fund
as a license to draw money down?
Mr. DIEFENDORF. It has been said that that is so. Of course, it
seems, when you look at the quotas and the relations, that some of them
were based on other things than the questions of trade, I think.
Senator TAFT. What are those?
Mr. DIEFENDORF. Well, for instance, as I remember it, the quota of
Russia is within a hundred million of Great Britain's. That certainly
can't be based on trade. That must be based on some other consideration.
Senator TAFT. I S their trade—the British trade was 10 or 20 times
any international trade Russia ever had.
Mr. DIEFENDORF. That is correct. I believe there was some formula
set up for fixing those quotas originally, but I think that for some
reasons we got away from that. I think also that is the case between,
who is it, France and Holland as against
Mr. RIDDLE. Well, I think we have pretty well got away from the
formulas, and it was a matter of agreement at Bretton Woods.
Mr. DIEFENDORF. Well, I agree with that, but it is outstanding in
certain cases. I remember Russia and England as one, and I think
it was the Dutch and somebody else.
The CHAIRMAN. The Senators usually eat lunch to start on the floor
around 12 o'clock and so I am going to suggest to the Senators, the
members of the committee, that we continue this hearing at 2:30



BRETTON WOODS AGREEMENTS ACT

265

o'clock in the District of Columbia Committee room in the Capitol,
so that we shall be near the Senate.
, Senator TAFT. Well, if Mr. Diefendorf is perhaps through
Mr. DIEFENDORF. I have nothing more, and if the Senator would
excuse me, why, I would like——
Senator MURDOCK. I would like to ask one question or two, Mr.
Chairman.
The CHAIRMAN. Very well.
Mr. DIEFENDORF. I am trying to catch an early train, sir, if I can,
but I a.m at your service, of course, if you want me.
Senator MURDOCK. I propounded this same question to Dr. White,
of the Treasury, Mr. Diefendorf, and I would like to have your view,
of a banker, on it.
Eecently the Senate of the United States, at the request of the Board
of Governors of the Federal Keserve System, reduced gold-reserve requirements, as you know, from 40 percent to 25 percent on Federal
Eeserve notes and Federal Eeserve bank deposits. Do you consider
such a move on our part as a depreciation of our currency in any sense
of the word ?
Mr. DIEFENDORF. No; I do not.
Senator MURDOCK. Let me ask this

one other question: At the time
it was proposed by Governor Eccles it was quite thoroughly agreed by
all that there were two remedies; one, the reduction of our reserves,
and the other remedy would have been an increase of the price of gold;
that either step or either movement would bring about practically the
same result. Now, if we had increased the value of gold it would have
had an effect, would it not, on our currency ?
Mr. DIEFENDORF. I think it would have had a greater effect and
would have been—I prefer what was done.
Senator MURDOCK. But you do not feel that that is a depreciation,
in any sense, of our currency ?
Mr. DIEFENDORF. NO, I cannot see that.
Senator MILLIKIN. Mr. Chairman, may I be indulged for just one
question ?
The CHAIRMAN. Certainly.
Senator MILLIKIN. Probing further the effects of our being declared
in a short-dollar position, at that point we would either ante up or
we must modify our import policies; is that correct ?
Mr. DIEFENDORF. That is correct.
Senator MILLIKIN. If we choose to do nothing, then we must cancel our contribution to the fund, on the same ground that we are canceling our World War I debts; is that not correct ? Doesn't it come
to that?
Mr. DIEFENDORF. Well, if you chose to do nothing, I assume we
would withdraw from the fund, in which we would——
Senator MILLIKIN. Yes. And at that time we would be
Senator FULBRIGHT. What? Do you mean to say we would lose
what we put in if we chose to withdraw ?
Mr. DIEFENDORF. I didn't say that.
Senator FULBRIGHT. That is the implication.
Mr. DIEFENDORF. We would withdraw. I had not said that. I said
we would withdraw from the fund, and then we would be entitled
to that share of the assets that were left, for our particular
Senator FULBRIGHT. Yes.



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BRETTON WOODS AGREEMENTS ACT

Senator MILLIKIN. And then we would consider what the nature
of those assets would be at that time.
Mr. DIEFENDORF. That is right. We would, of course, have a large
share in perhaps foreign investments and maybe some gold.
Senator MILLIKIN. We would have
Mr. DIEFENDORF. Foreign currency.
Senator MILLIKIN. Yes. We would have a cut in foreign currencies which might or might not have realizable value.
Mr. DIEFENDORF. Dependent on whether or not we could use them.
Senator MILLIKIN. Yes.
Senator FULBRIGHT. Isn't there one
Senator MILLIKIN. And the fact that we got into a short-dollar
position would show that as of that time we had not achieved the
purpose of stabilization and that the world was in quite a state of
disbalance economically speaking.
Mr. DIEFENDORF. But the worst effect of it all would be the breakdown of the fund and its terrific effect all over the world. That would
be the worst effect, not on the dollars we would lose.
Senator MILLIKIN. We would then have to ante up or break the
heart of the world.
Mr. DIEFENDORF. I want to make it clear
Senator TAFT. IS that a poker term or
Senator MURDOCK. I would like to have the witness' answer to
that question.
Mr. DIEFEFDORF. I did answer it, didn't I ? I have no feeling about
the cost of the fund for if we could accomplish the purposes that are
laid out in this fund for a matter of $2,750,000,000 it would be money
well spent. But the real effect of the failure of the fund is the effect
on the whole economy of the world if such a thing failed after we
ratify it and become part of it.
Senator FULBRIGHT. I want to ask one further question in that connection. Isn't there but one answer to disbalance, whether you have
a fund or not, and that is that this country, either through purchase
of goods or through travel or in other ways, balance its exports and
imports ?
Mr. DIEFENDORF. That is my feeHng; yes, sir.
Senator FULBRIGHT. NOW, during this 25 years it wasn't in balance,
and you are anticipating a great imbalance in the next few years, but
the only solution has got to be in this country's taking nothing, hasn't
it, either in goods or services ?
Mr. DIEFENDORF. That is my feeling, sir, but I don't think
Senator FULBRIGHT. If we do do that, you would say the fund has a
fair chance of operating?
Mr. DIEFENDORF. Yes; but I am not sure you are going to do that.
That is one of my troubles.
Senator FULBRIGHT. Well, if you don't do it, without the fund you
are in very bad shape.
Mr. DIEFENDORF. Well, why not do the first thing first? Why not
get the fundamentals in there before you start to do something?
Senator MURDOCK. By that do you mean that we must have political
stability throughout the world




BRETTON WOODS AGREEMENTS ACT

267

Mr. DIEFENDORF. In certain places.
Senator MURDOCK. Before they enter into some kind of fund ?
Mr. DIEFENDORF. Well, I mean we must make good on the question
as to whether we are going to buy more abroad.
Senator FULBRIGHT. That is it.
*
Mr. DIEFENDORF. We are giving lip service to something. We
haven't done anything, very much, about it yet.
Senator MURDOCK. But-don't you consider that if we assume that the
fund will to some degree lend itself to economic stabilization, don't
you think that that is conducive to political stabilization ?
Mr. DIEFENDORF. Yes; but I don't think the fund lends itself to that
kind of stabilization in a period such as we will be in, with all the
same things present that were present before.
Senator MURDOCK. Well, but it has never been tried before, and the
world has come to chaos without it.
Mr. DIEFENDORF. Well, no fund of this kind has ever been tried
before.
Senator MURDOCK. That is what I say. And the world, notwithstanding that fact, has come to chaos.
Mr. DIEFENDORF. Of course, maybe I am incorrect.
Senator MURDOCK. It is in a chaotic condition today, and isn't it
about time that we maybe tried something new ?
Mr. DIEFENDORF. Well, historically I have arways felt that you could
forecast better on the things that have happened than you can on the
things ahead.
Senator FULBRIGHT. SO you can forecast definitely we will end
up in the same mess we are in if you don't do anything different, can't
you?
Mr. DIEFENDORF. Yes.
Senator TAFT. Mr. Diefendorf,

there is one thing I want to suggest : If you had $2,750,000,000 to dispense in the world to stabilize
the world, do you think you could accomplish more by dealing with
it directly than by putting it in a fund of this sort ? In other words,
is it diffused here in places it isn't needed, and unimportant places ?
Mr. DIEFENDORF. Well, of course
Senator TAFT. If you concentrated that money in solving one or
two problems
Mr. DIEFENDORF. When we say if it be diffused, it could be. I
don't know that at all. I don't know what $2,750,000,000 may do in
the world. We are talking about lots more than that in the bank,
and I think that will do a great deal to carry us over the period that
we are talking about.
Senator EADCUFFE. Mr. Diefendorf, may I ask a question following
up what I spoke to you some time ago about the matter being premature: Do you feel conditions are in such a distressed condition
now
Mr. DIEFENDORF. I am thinking more about the future than right
now.
Senator RADCLIFFE. Yes; that any such change as has been suggested would be too hazardous? Are you optimistic that those conditions are going to improve if something isn't done?
Mr. DIEFENDORF. I must be optimistic that they are going to improve.
Senator RADCLIFFE. Well, I mean is that optimism just based upon
75673—45




18

268

BRETTON WOODS AGREEMENTS ACT

faith, or does it rest upon certain concrete factors which you have
in mind which you think are in operation or which will develop?
Mr. DIEFENDORF. Well, I have questions in my mind. I hope that
we are going to attempt to solve these problems. I certainly believe
we are going to solve the questions of peace and security. I have
that much faith.
As to the questions of whether or not we are going to import much
more than we have in the past, that is a hard question to answer,
because people change their minds so rapidly over a few years. I
think today that most everyone, certainly all of my associates that
I talk with, believe in the theory of reducing tariffs, and either—
probably preferably by the reciprocal trade method, and certainly
labor is on that side, which in the past it was not. I am not so sure
of what may happen 5 or 6 years from now, or some given number of
years, because it all depends on what the effect is.
There are other questions involved in that. There is the question
of whether or not the idea that we are going to maintain a national
income of a hundred and forty million dollars or some such amount—
which I think would be helpful in the whole question of whether or
not we balance this situation and whether we buy more abroad,
because certainly with larger incomes in this country we do travel more,
we do buy more luxuries, we do a lot of the things that help bring
about the kind of a situation which we would like, but I don't know
whether that is going to happen.
Senator RADCLIFFE. NO. If conditions do not right themselves, and
we remain in the present situation, which is certainly a very unhappy
one and a very distressed one, for a considerable period of time, do you
think it is quite likely that you would be willing to take the plunge
later on ?
Mr. DIEFENDORF. Into the fund?
Senator RADCLIFFE. Yes.
Mr. DIEFENDORF. Yes; I think I would.
Senator RADCLIFFE. Well, is there any advantage in waiting?
Mr. DIEFENDORF. If all these conditions are what you say.
Senator RADCLIFFE. Well, I mean suppose they do not improve.
Mr. DIEFENDORF. Oh. I didn't understand your question.
Senator RADCLIFFE. Suppose they do not improve.
Mr. DIEFENDORF. NO ; I would never advocate the fund under those
conditions.
Senator RADCLIFFE. YOU would never go into the fund with conditions existing as they are today ?
Mr. DIEFENDORF. And, as I say, with the uncertain conditions just
ahead that I think will prevail.
Senator RADCLIFFE. YOU would rather endure the lot you have?
Mr. DIEFENDORF. Well, I do not think the fund is going to correct
that. I think you are giving the idea of the fund doing something
which it will never do, and you are going to have failure ahead of you.
Now, then, I want to say here that I do not think we should always
think of our solving all the problems ourselves. There is a lot to be
solved by somebody else. One of the implications of this fund that
always bothers me is that the fault lies with the creditor, with the man
who is on that side of the picture.




BRETTON WOODS AGREEMENTS ACT

269

Senator RADCLIFFE. YOU say you do not think the fund is going to
do the job. Do you think any other factors will do it ? If not, there is
a pretty pessimistic prospect ahead of us.
Mr. DIEFENDCRF. Well, we have solved problems before without a
fund. We have found ways to stabilize currency before.
Senator RADCLIFFE. I know, but we usually have something pretty
definite and concrete in mind, what we are going to do.
Mr. DIEFENDORF. Well, aren't you being too definite at the wrong
time ? In my opinion you are.
Senator RADCLIFFE. If you turn down a concrete proposition it
is usually desirable to have something concrete in mind and not
simply rely upon the abstract hope that something will develop or
that processes will readjust themselves.
Mr. DIEFENDORF. Well, perhaps time will tell whether or not we
prefer this kind of international arrangement, a fund of this kind,
with provisions for devaluing currency, and so forth, as against the
gold basis. I wouldn't think either would be good right now.
Senator TAFT. Well, I suggest, Mr. Diefendorf, there is a very
definite thing that can be done and that will have to be done whether
the fund is put up or not, and that is: Settle the problem with England.
Mr. DIEFENDORF. Certainly.
Senator TAFT. In other words, to stabilize the dollar and the pound
on a permanent basis, which can only be done if you probably make
some loans to England, help them solve their block sterling balances
and set up—and I suggest if you can do that particular one thing you
accomplish two-thirds of the purposes of stabilization that are contained in the fund.
Senator RADCLIFFE. Well, wouldn't the fund probably facilitate it ?
Senator TAFT. It certainly would not.
Senator RADCLIFFE. It certainly would not militate against any such
plan as that.
Senator TAFT. NO ; but it is just wasted, because the whole question
is whether you can start with English stabilization. If you can, you
can stabilize two-thirds. If you can't, you can't stabilize anything,
and the fund is a complete failure.
Senator RADCLIFFE. And do you think the creation of this fund and
Its operation would be of no assistance whatever to us in working out
a balance with Great Britain ?
Senator TAFT. Absolutely no assistance whatsoever, in my opinion.
Senator RADCLIFFE. Well, of course, there may be difference of
opinion on that.
Senator TAFT. Well, what Lord Keynes says is right. Lord Keynes
says, "Yes; this is an iron ration. This is just an iron ration," this
fund. He says so in so many words in his speech: "Yes; we may want
to give them a little." In other words, we give them a little bite to
eat while we are negotiating.
Senator RADCLIFFE. Well, that is something.
Senator TAFT. But he still takes the position that this is of minor
importance to England.
Senator RADCLIFFE. Well, but if it is of minor importance it is of
some importance. You said it has no importance whatever. Even if it
is only an iron ration, it is something.




270

BRETTON WOODS AGREEMENTS ACT

Senator TAFT. It is something by lending England the amount of
money they can draw down in this fund the first year, which is about
$300,000,000. As far as helping the English situation is concerned,,
this is just equal to a loan of $300,000,000. That is what it is equal to.
Senator KADCLIFFF,. But even Lord Keynes says it is something.
Senator TAFT. What?
Senator KADCLIFFE. He says it is something.
Senator TAFT. An iron ration.
Senator RADCLIFFE. But that is better than nothing.
The CHAIRMAN. Well, we shall meet at 2:30 in the District of Columbia room in the Capitol.
Mr. DIEFENDORF. Do you want me again, Senator? Do you feel
that I should stay over ?
Senator TAFT. Mr. Chairman, there is one question I would like to
ask Mr. Diefendorf. This report is a very carefully prepared report,
and it isn't very long. I think it ought to be part of the record.
The CHAIRMAN. Perhaps we can put it in.
Senator TAFT. There was no long, prepared statement.
Senator RADCLIFFE. DO you want to catch a train ?
Mr. DIEFENDORF. Yes.
Senator RADCLIFFE. What time?
Mr. DIEFENDORF. I am trying to

catch the 2 o'clock train. I don't
think you need me, Senator, any more.
The CHAIRMAN. All right.
Senator RADCLIFFE. We need you, but
The CHAIRMAN. I don't agree with you in everything.
Mr. DIEFENDORF. I appreciate that. Well, then I may be excused ?
Senator TAFT. Well, let us discuss that question later.
The CHAIRMAN. I think so.
The WITNESS. Thank you sir.
(Whereupon at 12.15 p. m., an adjournment was taken until 2:30
p. m. of the same day.)
AFTER RECESS

The committee resumed, at 2:30 p. m. in the District of Columbia
committee hearing room in the Capitol, upon the expiration of the
recess.
The CHAIRMAN. The committee will resume. Is Mr. Palyi here?
Mr. PALYI. Yes, sir.
The CHAIRMAN. Please

take that chair at the table opposite the
committee reporter.
Mr. PALYI. Certainly.
The CHAIRMAN. We will be glad to hear from you.
STATEMENT OP MELCHI0K, PALYI, CONSULTING ECONOMIST,
CHICAGO, ILL.
Senator TAFT. Will you please give us first your name, and your
qualifications and history?
Mr. PALYI. My name is Melchior Palyi.
Senator TAFT. What is your history and experience in matters of
this kind ?



BRETTON WOODS AGREEMENTS ACT

271

Mr. PALYI. I am Hungarian-born, an American citizen, and I
studied and taught in different European countries; Hungary, Switzerland, Germany, for almost 25 years. I have been teaching money,
banking, and international finance in universities and graduate schools
of Germany, Britain, and the United States. My practical experience
in the field began in the last war when I was for awhile advisor to the
Austro-Hungarian Bank, the central bank of the Hapsburg. monarchy.
Then I worked for a year in a German bank as foreign-exchange
operator. From 1927 to 1933 I was chief economist of the Deutsche
Bank, the biggest continental bank, and in the crisis of 1931-33 I was
adviser on foreign exchange matters to the Reichsbank.
Senator TAFT. Where was that?
Mr. PALYI. The central bank of Germany.
Senator TAFT. In Berlin?
Mr. PALYI. Yes, sir. I was a sort of dollar-a-year man but did not
get the dollar. When Hitler drove me out of the country I went first
to Britain and was a guest of the Midland Bank for 9 months, invited
to lecture at the University College of Oxford. Then I was invited to
this country by the University of Chicago. I taught there, and at
Northwestern University, and at the University of Wisconsin. The
last few years I have been consulting economist connected with different financial institutions in the Middle West.
Senator TAFT. Will you mention what institutions they are?
Mr. PALYI. The Northern Trust Co. in Chicago, and the Central
Life Insurance Co. of Illinois, and quite a number of others, minor
ones.
Senator TOBEY. Were you associated with Dr. Schacht?
Mr. PALYI. At the time Schacht was president I was not officially
connected with his bank, but I was a very close friend of Schacht's
for a while.
The CHAIRMAN. Under Luther ?
Mr. PALYI. Yes, sir; I was connected with the Reichsbank under
Luther.
Senator TAFT. Did you testify before the Committee on Banking and
Currency of the House of Representatives ?
Mr. PALYI. Yes, sir.
Senator TAFT. Have

you a prepared statement in the way of an
over-all statement on this subject that you would like to read to us
before questioning ?
Mr. PALYI. I have no prepared statement, Senator Taft. The invitation to appear came very suddenly, and I expected to be questioned. But if you wish me to make an introductory statement for
discussion I will be very happy to do so.
Senator TAFT. All right.
Mr. PALYI. May I start out by saying that I do not think your job
is very enviable here discussing Bretton Woods, nor is my job in doing
the same thing, because we are discussing the tail end of a much bigger
animal, so to speak.
As I understand the situation, you will be expected to put up something like 6 billion dollars which will be at the disposal of these
institutions to lend to foreign countries. And I understand, beyond
that there are very large plans pending, such as $6,000,000,000 to
$12,000,000,000 to Russia, great amounts to Britain, France, and so on.



272

BRETTON WOODS AGREEMENTS ACT

Whether or not that is true, I do not know, but I do understand that
to be the case. The $6,000,000,000 involved in the Bretton Woods plan
is just a small part of the much larger project; and I do not see how
we can discuss the stabilization effects of $6,000,000,000 if you plan to
spend sixteen or twenty-six billion dollars altogether.
Senator TAFT. I think you should assume here, first, for the purpose
of your testimony, that this plan stands by itself, as if it were the only
plan, perhaps supplemented by some Government loans of two or
three billion dollars.
Mr. PALYI. If you have in mind Export-Import Bank direct loans?
perhaps leaving them out will make things easier for the sake of the
discussion. Of course, they are only a minor element and it makes
unrealistic a statement about it, leaving out some of the important
things in the picture.
If I am to refer to the Bretton Woods plan, the first thing that
occurs to me is that it is to be broken up into two parts, very strictly
separated—but can they be so separated in fact ?—which are discussed
in public so much as two entirely different institutions.
Now, from the point of view, not of technicality but of the main
purpose—stabilization—I do not see any difference whatsoever between the fund and the bank. As a matter of fact, the two accomplish
exactly the same thing. To me they look like this: let us say, for
example, that Russia wants to buy from the General Electric Co.
some utility equipment, perhaps to the extent of $100,000,000. Russia
could do that under the Bretton Woods plan by two different ways:
she can order the equipment from the General Electric Co., and when
it comes to paying for that equipment she can go to the fund with the
bills, so to speak. Or Russia can go first to the bank and say: "I intend
to purchase $100,000,000,000 worth of equipment from the General
Electric Co. Will you please give me the funds for that purpose ?
Now, I do not see what difference, if any, there is from the point of
view of stabilization, whether you ask for the money first and then
make your purchase, or you buy first and then ask for the money. The
stabilizing effect in either case is that the central institution, disregarding technicalities, provides the money. So both institutions serve
the same purpose, namely, if I remember the law, that of taking care of
the balances of payments. That is exactly what it is, balancing unbalanced margins, in the balances of payments, whether by the fund
or by the bank.
Senator TAFT. DO you say you cannot separate temporary shortages
from long-term shortages ?
Mr. PALYI. There is no such separation. You cannot separate
them; I mean, credit for a long period and money for a short period.
The distinction between short-term loans and long-term loans comes
from pur banking practice, which is not applicable here. There is no
such distinction here, whether you buy cotton or you buy copper or you
buy utility equipment which amortizes itself in 75 years. The fund
steps in and pays for it as soon as the buying country does not have
the money to pay. The commonly accepted distinction between longterm investment, and short-term investments does not apply here.
I should like somebody to point out the page and paragraph where
it is claimed that any such distinction may be found. There is no
reference to any difference between the two in the statutes. It would



BRETTON WOODS AGREEMENTS ACT

273

be of no major consequence if it were, but there is no such distinction.
The only thing the fund excludes is something like this: If the Russians would enter the New York Stock Market and buy stock of the
General Electric Co. and then make application to the fund for the
money to pay for that stock, then the fund could say, "That is no part
of our business. That is a capital transaction." Yes; that is excluded.
What they mean by capital account is not capital goods but capital
rights, such as stocks on an exchange. Therefore, between the fund
and the bank I cannot see any distinction. Most of our banker friends
are simply misled about the whole thing, as though it would be the
same thing, like the distinction between short- and long-term transactions in normal banking.
Senator TAFT. It has been testified here that Russia might under
the fund borrow 25 percent of its quota each year to pay for permanent building. That is your view of it also, is it?
Mr. PALYI. Surely. It does not exclude it. You might have theoretically an arbitrary management that would say, "I won't pay your
bill except it is a bill for wheat, cotton, copper, or short-term consumer
goods." In practice you cannot have a management that will do that.
Senator TAFT. Section XIV of the bill was apparently put in with
some idea of stopping that. Have you read that amendment made
over in the House ?
Mr. PALYI. Yes.
Senator TAFT. Which

takes the position that the authority of the
fund should not extend—
beyond current monetary stabilization operations to afford temporary assistance
to members in connection with seasonal, cyclical, and emergency fluctuations in
the balance of payments of any member for current transactions.

Mr. PALYI. Suppose Russia demands electric utilities to be erected,
whatever the cycle in Russia is, or whatever the emergency is—that is,
capital goods of a durable nature. And we will say that she does get
the long-term credit, but at the time Russia has to pay she has not the
money. Of course, she could get it from the fund, according to the
statute.
Senator TAFT. Let us suppose that England ran short of pounds,
we will say, by paying a part of the debt she owes to India.
Mr. PALYI. That is a different case. That would be a capital account. Well, now, I cannot answer that question so positively. Possibly then that would fall under emergency. I answered you too fast.
I apologize on that. It could be construed as a capital transaction.
But let us say you purchase a commodity, and how can you say what
commodity is short term and another commodity is long term ? Suppose Russia buys iron to make utility plants; is the amount of iron
purchased long-term or short-term transaction. The whole picture of
the fund, if you read through the statute, is that any shortage in
international purchasing power arising from what is regarded as
normal or regular commercial transactions, such as buying goods*
buying goods of one country by another country, should be a normal
matter.
Senator TAFT. What is your conclusion there ?
Mr. PALYI. My conclusion there is that the bank and the fund are
one—that there are no two separate institutions.
Senator TAFT. Are what?



274

BRETTON WOODS AGREEMENTS ACT

Mr. PALYI. That they are one and the same institution, serving the
same purpose. Yes; there are two plans involving a little different
technique in each case, and that may have some justification for technical purposes, but I do not see any difference in stabilization effect.
And the two have to be judged together.
Senator TAFT. DO you think it would be an effective means of
stabilizing?
Mr. PALYI. That is the next question, whether the whole amount
is effective.
Senator TAFT. There is the bell. We will have to suspend for
awhile to go to the floor of the Senate to vote.
*
The CHAIRMAN. The committee will stand in recess for a few
" minutes.
(Thereupon the committee was in recess from 3 to 3:10 p. m.)
AFTER RECESS

Senator TAFT. Mr. Palyi, what is your opinion as to the effectiveness of this fund and bank in achieving stabilization of currencies
in the world ?
Mr. PALYI. I was just beginning to talk about that before and point
out a rather minor detail to eliminate it at the outset, namely, that the
bank statutes do not contain any provision in that direction at all.
Since the" function of the bank is the same as that of the fund, it is
possible that people who borrow from the bank do not live up to the
provisions of the fund about stabilization,of their currency. What
the bank statutes say is that members of the bank have to be members
also of the fund, but so long as they are members of the fund they can
ask for credit and get credit from the bank even so they don't live
up to the standards they should live up to according to the provisions
of the fund. But now, coming to the fund's provisions, I am afraid
I will have to summarize at the outset; what I think about it is that
this plan as it stands does not accomplish stabilization. On the contrary, it creates a new unstabilizing force of a very dangerous nature.
The CHAIRMAN. Are you talking about the bank or the fund ?
Mr. PALYI. The fund. The bank statutes do not say anything about
that. I am speaking now only about the fund, and I am referring to the
terms of the fund statutes, the terms in which the statutes deal with
the problem of exchange restrictions. Exchange restrictions are not
only an evil matter, a result of a lack of stabilization and an interference with the free flow of goods and capital, but actually they are
creating instability. Nothing in the world can create more exchange
instability than a system of exchange regulation in a major trading
country. I don't know whether I ought to go into details about that.
I feel I know something about it, because I was a party to the organizing of the German exchange regulation in 1931, and I saw them grow
from a very little beginning into the worst system of strangulating
foreign trade that has ever existed, not only German foreign trade but
the foreign trade of other countries as well.
Senator TAFT. I think it would be interesting if you would describe
what they were, Mr. Palyi.
Mr. PALYI. It began simply with the German banks defaulting on
the deposits of foreign banks. They just couldn't pay them. They



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had total deposits of 14 billion, and 9 billion belonged to foreign banks.
I am speaking now in gold marks, not in dollars. It was just out of
the question to pay that out. Nobody would loan Germany any money.
So they fell on the solution which they borrowed from the Russian
pattern, to simply say that "the money is not available for the time
being," which lead to the standstill agreement, with the banks in
default since 1931.
That has been renewed until the war began between Germany and
England. That seemed in itself an innocent action. The bankers
just had to wait until the Germans were willing to pay little bits this
year and next year. But soon they had to forbid the export of capital
altogether, because a country which cannot pay debts to foreigners is
not a country in good credit standing, and the Germans themselves
started to export capital, bringing it to Switzerland and elsewhere.
So they had to be prohibited from doing that.
The next thing was that they had to stop the tourists traffic, because it turned out that the tourists were taking the money out of the
country which meant that they had to look into everybody's pocket
who left the country, open every car and go inside of every railroad
train to see whether any money was hidden in there. The result was
that they had to put the tourist traffic under the strictest control and
limit the amount a tourist might take with him.
Moreover, the consequence was that the longer the system lasted
the less the Germans could get credit. In the Deutsche Bank, which
I was connected with, we could get $10,000,000 credit by just sending
a telegram. By 1932 we couldn't get $10,000 credit in the world outside of Germany. We just got no more credit under that system.
Then, the next thing was that foreign trade had to be manipulated,
because it turned out that you can export capital in the form of
goods, such as selling goods abroad and keeping the export proceeds
abroad. So you had to control very strictly who sells what, and
what does he do with the proceeds. Then it turned out that you
can also export capital by importing goods. That was a very nice
trick which some German businessmen developed, buying cotton in
the United States, with the permission of the Reichsbank, buying
it with Reichsbank gold reserves, and then simply saying, "Don't
deliver it to me, just keep it in my name until I come myself and
get it."
Then, of course, in order to control that they had to resort to the
most extreme authority over what could be bought abroad. The result
was, there was no angle of international relations that did not pass
under the strictest of control, and there was no more international
trade of a normal kind—every trade had to be balanced with an offset,
an import with an export. Virtually the whole thing was taken over
by the Government, and a vicious system of clearings and payment
agreements was developed which was only the logical consequence of
the initial proposition.
Now, then, while that was a necessary proposition and was so regarded by everyone, it gets a country into a very bad reputation.
Countries which do that are regarded badly behaved in international
relations. Unless they do it for a very short period or in very modest
fashion, they are just sort of bad boys. Moreover, retaliations follow
naturally. The other countries retaliated against these measures by



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similar measures or raising tariff or boycott measures. Naturally
they didn't tolerate that interference with export and tourist traffic.
Now, what these statutes of the fund do very cleverly, sub rosa, so to
speak, is to introduce the same methods of foreign-exchange control
and make them legitimate, not only tolerable, but sort of desirable.
They almost induce countries to introduce foreign-exchange regulations and make them sort of acceptable in good society. They take
off the blame from the country which uses those methods. There will
be, I am afraid, a situation created that will have a very bad moral
effect and which will have very grave economic consequences.
Senator TAFT. Are you referring to article XIV?
Mr. PALYI. I am referring to the whole set of articles. Let me
begin with that, Senator. In the first place the fund management
can permit in individual cases that foreign-exchange regulations
should be introduced. That, of coursej depends on management how
far it will permit that.
In the second place, under article VI, section 3, that members may
exercise such controls as are necessary to regulate international capital
movements. Now that paragraph opens up the whole system of foreign-exchange regulations, and I am afraid the authors of this paragraph did not realize what they were doing, because if they had
realized it they would have at least put something more into that article
to avoid the consequences.
Senator TAFT. What article is that?
Mr. PALYI. Section 3 of article VI on capital transfers. Of course,
there is no definition of what a capital transfer is. A capital transfer can be almost anything. You may ship cotton and it is capital
transfer if you use it for capital purposes. It is capital invested
in some form or shape. I referred to the example of tourist traffic.
Tourist traffic is not a capital movement, but if you want to make
capital transfer control effective you have to control tourist movement so as to avoid capital movement taking place through the pockets
of tourists. A very authoritative Englishman told me in London this
winter that the Bank of England, or the monetary management of
Britain, is definitely not going to permit tourists going out of the
country, unless they are going to countries which take care of the
expenses of the tourists, but not if a foreign exchange problem is involved. In other words, the British will have to enjoy nature and
art at home. They cannot travel abroad. How could they maintain
the control of capital transfer if they don't keep the money at home
in the form of cash in the pockets of the public ?
Senator TA^T. Let me read this section 3 and see if I understand it:
Members may ixercise such controls as are necessary to* regulate international
capital movemen ;s, but no member may exercise these controls in a manner which
will restrict payments for current transactions or which will unduly delay transfers of the fund in settlement of commitments, except as provided in article
VII, section 3-b, and in article XIV, section 2.

Now, it will be said that this language—
"but no member n a y exercise these controls in a manner which will restrict payments for current transactions—

may prevent what you say from being brought about.
Mr. PALYI. No; it doesn't prevent it because there is no definition
of the difference between a current transaction and a capital transfer.



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277

As I mentioned, you buy cutton for the purpose of investing your
money in cotton. Is that a current transaction or a capital transaction ? What about the tourist who takes money in his pocket for
the purpose of spending it on the Rivera? Is that a transfer in
capital for current or capital purposes ? In either case money has to
be exchanged against foreign money. If you permit them to do that
your whole capital transfer control breaks down. You cannot control
effectively capital transfers without controlling the purchase of goods
and without controlling tourist movement. Therefore, that language
doesn't help any because the language does not give you any definition.
Nor does it say who decides about that. Presumably each individual
country has a right to decide that matter, but at any rate, there is no
power given to the management to put up definitions and determine
that Britain is violating this article VI, section 3, if Britain introduces
control of tourist traffic and say that nobody can leave the country with
more than £10 in his pocket to spend on the Riviera.
Now, that is not the whole story
Senator FULBRIGHT. In that connection, do you think that on page
36, article XIX-(i) :
Payments for current transactions means payments which are not for the
purpose of transferring capital and includes without limitation all payments due
in connection with foreign trade and other current business, including services
and normal short-term banking and credit facilities—

would cover the situation you are speaking of ?
Mr. PALYI..No; that is not a special definition because*it says—
in the first place under IV, it says, "moderate remittances for family
living expenses." What is a moderate remittance for family living
expenses? If J. P. Morgan lives on the Riviera that is a different
amount than if I live there.
Senator TOBEY. Einstein says everything is relative. It depends
on what your standard of living is.
Mr. PALYI. That is right. Therefore it doesn't define anything.
What is moderate ? Is £20 for a tourist to take along with him to the
Riviera moderate or less than moderate?
Senator TAFT. Less than moderate.
Mr. PALYI. Well, it doesn't say so.
Senator FULBRIGHT. I t would be easy to say a million pounds would
be more than moderate.
Mr. PALYI. Surely.
Senator FULBRIGHT. HOW can you be so specific in determining it ?
I don't think you would like for them to say £100 is all you can take
with you.
Mr. PALYI. That is the point. I would say there is no way of determining at all. Therefore, whatever you put in is absolutely arbitrary.
Senator TOBEY. Don't you think that you are straining at gnats
and swallowing camels here?
Mr. PALYI. I don't get it.
Senator TOBEY. YOU would if you ever swallowed a camel. I mean
you are picking out little idiosyncrasies in this text and holding them
up; aren't you missing the great objective of this proposed plan, both
of the bank and of the fund ?




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Mr. PALYI. Senator, I can go through this whole thing—I am just
going from point to point now, and this is one point among five or
six.
Senator TOBEY. I see.
Mr. PALYI. I just wanted to point out that on this score, to say the
least, there is great danger that all sorts of manipulations and foreign
exchange practices will be introduced under the pretext of controlling
capital movements. More than that, they will have to be introduced
if the control of capital transfer should be made effective, but this is
only one point amongst several. If you will permit me to go on I will
be very happy to accept your criticism when I get through.
Senator FULBRIGHT. In that connection, I don't think any of us believe we can make an instrument that frees us from the necessity of
some judgment in management. We necessarily are going to have
to rely upon the reasonable judgment of the management of the fund.
I don't think we expect to have it work without that judgment. It will
be up to them to make decisions on matters of that kind, whether it is
moderate or it isn't.
Senator TAFT. May I interrupt. Senator Fulbright ? I don't think
you were here at the start of this discussion. The purpose of this
whole discussion, as I understood the witness, was to show that the
whole fund support, instead of eliminating exchange restrictions,,
necessarily makes them legitimate and invites countries to increase
exchange restrictions rather than to decrease them. That is the point
of what the witness was saying before. These are only examples of
that point, as I understand it.
Mr. PALYI. Don't misunderstand me, Senator. I am happy to
have your questions or remarks while I am speaking, and I would
like to remind you I am going over a number of points in this whole
picture that impress me as significant. This is only one little item
in the picture.
Now, going to the next point, section 4 of article VIII, foreign-held
balances.
Senator TAFT. W n a ^ page is this?
Mr. PALYI. Section 4 of article VIII. If a debtor country owes
money and the question of repayment arises. Here is something even
more general than the question of capital transfers. It says:
Each member shall buy balances of its currency held by another member if
the latter in requesting the purchase represents (1) that the balances to be bought
have been recently acquired as a result of current transactions; or (2) that their
conversion is needed for making payments for current transaction.

Each member shall buy balances of its own currency, meaning to
repay its debt. A dollar balance held by another country is a debt of
the United States to another country. In nontechnical language the
article deals with the question of repayment of debt, and it does not
matter what kind of a debt. All kinds of balances it speaks about.
Then a debtor has to repay—I change the language, but it has the
same content—first, if the creditor represents that the balances to be
bought have been recently acquired as a result of current transactions *
if they have been recently acquired. What is recently ? No definition
anywhere. In other words, ar debtor ean say this balance was here
sometime ago. Therefore I do not have to repurchase that balance.
In other words, I don't have to pay on that debt; which is nothing



BRETTON WOODS AGREEMENTS ACT

279

else than a foreign exchange restriction because it doesn't say I default
on the debt forever. I just don't pay for the time being. That is the
essence of foreign exchange regulation under another name.
Then it says, "recently acquired as a result of current transactions."
That comes again in the distinction between capital transfer and current transactions. If it is capital transfer it does not apply. But
what is a capital transfer? In view of the fact that the distinction
between capital transfer and current transaction is one of paying a
debt or not paying a debt, I don't think I am too technical in asking
that somewhere a definition of that ought to be made clear. As a
matter of fact, the importance of this is that it is impossible to make
any distinction between the two because it depends on the intention
underlying each transaction.
Secondly, the debtor has to pay—I am using that vulgar language
instead of saying it has to repurchase balances of its own currency if
the creditor represents that the conversion of that balance is needed
for making payments for current transactions. That means that, if
for example, supposing we are the creditor and Greece is the debtor,
if Greece owes us a balance in drachma and otherwise doesn't pay, but
if we buy Greek tobacco, we can use our balance in drachmas to pay
for it and the Greeks cannot say, "No, we do not accept our own
drachmas." That they have to accept under any conditions. If we
make a payment after we have received their goods—again a current
transaction once more as against a capital transfer—then the Greeks
have to pay, that is, have to accept their own money in lieu of payment.
If we buy something in Greece why should they refuse payment in
drachmas ? But now comes the realy interesting part of section 4—
namely, under B.
The obligations under A do not apply at all when—here is the point
I would like to emphasize—when the balances have accumulated as a
result of transactions effected before the removal by a member of
restrictions maintained or imposed under article XIV, section 2.
Now, that means if a member had its currency under restrictions for
some time, or has put it under restrictions because of special circumstances, with the permission of the fund, or without even asking the
fund—now, if Greece bought something from the United States while
she was under foreign exchange restrictions and the payment matures
a year later, then Greece can say, a Oh, no. I am not paying now
because I incurred that debt under B-4, while I was under foreign exchange regulations and acprding to article VIII, section 4-b-2,1 don't
have to pay."
Now, that is a very funny provision, to my mind. Why should
Greece not pay after she has already abolished the foreign exchange
regulations? But because she incurred the debt at the time when
the foreign exchange regulations were in force, 10 years later she is
entitled to say, "I am not paying now because of article so and so." •
But that is not all. The further implication of that sentence is
this: During the transition period every member is entitled to mainoi
t 'n o~ even introduce new foreign exchange regulations. Not before
somebody enters the fund, but after one. The transition period is not
defined exactly as to its length, nor is it said anywhere in the statutes
who defines when the transition period ends finally.




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BRETTON WOODS AGREEMENTS ACT

Senator TAFT. Five years has been suggested in article XIV, section 4—3 years and then 5 years.
Mr. PALYI. Section 4?
Senator TAFT. Of article XIV.
Mr. PALYI. After 5 years and each year thereafter any member still
retaining any restrictions, and so forth, shall consult the fund as to
their further retention. The fund may, if it deems such action necessary in exceptional circumstances, make representations to any member that conditions are favorable for the withdrawal of any particular restriction, or for the general abandonment of restrictions,,
inconsistent with the provisions of any other article of this agreement. The member shall be given a suitable time to reply to such
representations.
If the fund finds that the member persists in maintaining restrictions which are inconsistent with the purposes of the fund the member shall be subject to article XV, section 2-a. Therefore, at least
for a 5-year period, you have countries regarding themselves as being
in the transitional period, and probably for much longer. It is at
least a permission to go a long way, but the point is that under section 4
of article VIII, b-2, old debts incurred during this transition period
are blocked forever—since this period during which foreign exchange
regulations can be maintained is simply indefinite, if the member
chooses to do so, and he does not have to pay, even after the exchange
regulations have been abolished. In other words, foreign exchange
regulations last forever for all debts or obligations incurred the first
5 years, and possibly longer, during the lifetime of fne fund itself and,,
of course, for other obligations incurred previous to the lifetime of
the fund. That means a pretty wholesale permission of maintaining
permanently foreign exchange regulations with all their consequences
and all the economic warfare they create.
These foreign exchange restrictions permitted here do not apply
only to capital transfers. They apply to any kind of obligation. If
Greece bought cotton during that transition period and didn't pay r
she can go on forever not paying. There is nobody to blame her for
not paying. She has a perfect right not to pay. There is no question
of whether she is able to pay. She can have all of her gold reserve
built up; she can be a member in good standing, and default on a
cotton loan, contrary to the letter of that loan and contrary to the
spirit in which that contract has been undertaken.
Senator FULBRIGHT. What does section 2-o of that article mean ?
Mr. PALYI. Which article ?
Senator FULBRIGHT. The same one—article VIII, section 2.
Mr. PALYI. It says:
Subject to the provisions—

and so forth—
no member shall without the approval of the fund impose restrictions on the
making of payments and transfers for current international transactions.

That is right. Then it goes on in section 4 to modify this for debts
already incurred.
Senator FULBRIGHT. NOW, the individual traders under this, they
will get paid; these are balances of the Nation; isn't that right? I s




BRETTON WOODS AGREEMENTS ACT

281

there any distinction between the actual people engaging in trade and
the Nation—the balance in the central bank ?
Mr. PALYI. Of course, there is a distinction if you wish to have a
distinction, but it is in the hands of the debtor government to make
or not make the distinction. In the case of Eussia, there is no distinction at all between individual and government balances.
Senator MILLIKIN. Would you mind tracing through for us a cotton
purchase by a Greek purchaser from an Arkansas cotton merchant ?
I think that might be helpful.
Senator FULBRIGHT. That is what I had in mind.
Senator MILLIKIN. Let's trace that through the private aspects into
the bank aspects.
Mr. PALYI. I will trace it through in a transaction which took place
in the first 5 years of Greece's entrance into the fund or which has
taken place previous to Greece's entrance or whatever period is underlying here.
Now, then, a Greek merchant buys from an American cotton merchant cotton. Assuming that the American gets paid by an American
banker, who, in turn, credits a Greek bank, which is a very possible
procedure in international trade—in other words, the American cotton
merchant has no problem any more. He got paid in dollars. The
whole problem is in the hands of the American banker who, in turn,
has a balance against Greece. That balance is a private balance owed
by a private trader. But Greece has a law, which is perfectly permissible under these statutes, that all foreign claims and all foreign debts
have to be delivered to the central bank. In other words, if a Greek
has a dollar balance he has to hand it over to his central bank and get
credited in Greek drachmas, and if the Greek owes dollars abroad then
the central bank pays for him whenever that matures, or is supposed
to pay, provided it is a legitimate transaction. That absolves the
Greek form the transaction except in drachmas. The Greek pays in
drachmas to the central bank. The central bank is now the debtor of
the American bank. Now, this is not an imaginary procedure I am
describing here. This is the way countries handle those things which
have foreign exchange regulations. This is the German technique—
I was present in Germany when that was introduced—so as to have
full control over all transactions in foreign exchange.
Now that money is owned to the American banker by the Greek central bank. He may not even know it. All he knows is that the Greek
bank owes him the money, or he may have been notified, but it is not
essential. The debt is no better or worse for that.
Now, then, maturity comes say, a half year, after the transition is
over. The American banker has been generous enough to give 2
years' credit to the bank. Then the Greek national bank says, "I am
so sorry, but I don't have to pay because I am entitled to the moratorium"—there is no such term in here—-"which this article VIII, section
4 under b-2 gives, and I find it necessary with my sincere regrets to
refuse payment. You may wait for better times."
Senator TAFT. Then the law requiring the delivery of balances to a
central bank is that an exchange restriction which would be prohibited
after this whole thing goes into effect ?
Mr. PALYI. NO ; that is not an exchange restriction, that you have
to deliver it. It is just like our gold. We have to deliver all the



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BRETTON WOODS AGREEMENTS ACT

gold we havd to the Treasury, but that is not an exchange restriction.
Senator MILLIKIN. I should like to suggest that such laws will be
necessary under the operations of this fund in order to try to funnel
these transactions into central banks, so that control may be had over
these established relative values of currency.
Mr. PALYI, If you believe in controls, of course, that is absolutely
necessary, but whether you like it or not, it is contrary to the spirit of
these statutes to eliminate the freedom of exchanges.
Senator MILLIKIN. Unless each country by its internal laws passes
such laws and makes such regulations as will funnel transactions of
the type we have mentioned into a central bank, how can this system
be maintained ?
Mr. PALYI. It could be still maintained, but, of course, there would
be much moi4 evasion. Originally, in Germany, if I may refer again to
my experience in Germany, we in Germany originally did not have to
deliver balances to the central bank. We did not have to report currently all detts we had. But when it came to payment we had to ask
for gold or dollar exchange from the central bank.
Then it turned out that all sorts of misuse had been made of that
freedom. So as the next step; the central bank says, "from here on
you will let me know what you are doing. As a matter of fact, before you do it, you will let me know."
•Senator MILLIKIN. Senator Fulbright, before you came in the witness described for us a very interesting cumulative series of regulations that started from a small initial regulation, in an attempt to try
to control tliese exchange matters.
Senator FULBRIGHT. I still don't understand—section 2 says here
that the members shall not do the very thing yt>u have been suggesting
they would dp. It says they shall not impose those restrictions. On
whom? I would take that to be on the traders. It will not be required that they funnel these things through, as you say.
Senator TAFT. There is an exception, article XIV-2, of the first
5 years.
Senator FULBRIGHT. This paragraph refers to the central bank
balances that have accumulated, but in this interim, the member itself cannot niake the debtor do all these things you have been talking
about. You $aid that the member makes the Greek pay his money into
the central bank and so on. I would say that section 2 says the member shall not ixiake the Greek trader do that.
Mr. PALYI. I don't see anything like that, because that is a purely
internal measure.
Senator FULBRIGHT. Well, that is a restriction.
Mr. PALYI. NO. Just like our law that every American citizen has
to deliver his gold. That is an interference with our freedom, but it
doesn't affect foreign exchange at all.
Senator TAFT. YOU say this kind of control follows naturally on
exchange restrictions; the existence of exchange restrictions may
lead to this control that you speak of ?
Mr. PALYI. YOU may have this control without exchange restrictions. You c^n very well have a system in which every American who
owes money ^broad is supposed to register with the Federal Reserve
bank or som^ other institution and say, "I owe so much money to
Greek dealers, and here it is."



BRETTON WOODS AGREEMENTS ACT

283

The Federal Reserve may say, "All right. You owe it to me from
here on, and I will deal in your name with the foreign dealer."
Senator FULBRIGHT. YOU say that is not a restriction ?
Mr. PALYI. That is not a restriction because a restriction refers to
payments abroad, not at home.
Senator FULBRIGHT. Then your theory is that by such a restriction
they will force an accumulation of all of these balances ?
Mr. PALYI. AS a matter of fact such laws apply in most European
countries at the present time. They are in actual use. There is
nothing in the fund statute that says that they have to modify their
policy when they enter the fund. In England if you wish to owe
money you first have to have the permission of the Bank of England
to do so.
Senator FULBRIGHT. Suppose you already owe it. What can they
do in England ?
Mr. PALYI. If you owe it already, you have to have permission of
the Bank of England to make payment. The Bank of England has
discretion to permit you or not permit you to do it, absolutely,
As a rule it won't permit it unless it serves Britain's interest in maintaining England's balance abroad. In other words, if it is a payment
they have to make in order to get something from abroad, they will
permit it.
Senator FULBRIGHT. It has been suggested that if you do not have
this fund you would still have these restrictions.
Mr. PALYI. Very true; but you don't legalize them. I do not advocate—I am still not through with my testimony—I do not advocate the
abolition of the fund. What I would advocate is the fund without
these restrictions—a fund is necessary in my opinion, some sort of
international organization is necessary to carry us through the difficult times we are facing internationally, but not one which, in my
opinion, legitimizes, encourages, and actually introduces the very
things which it should abolish.
Senator FULBRIGHT. It says that is for the transitional period in
order to try to bring about a balance. Is that the excuse for that?
Mr. PALYI. Very true; but in the first place the transitional period
is very long and it applies beyond the transitional period for every
debt incurred during the transitional period. Moreover, it is not
the only paragraph of its kind in this statute. I t will also bring up
the question of capital transfers, what they are, as against current
operations.
Senator FULBRIGHT. NO one can tell how long the transitional period
should be. If we had the feeling it could be limited to a year; I suppose everybody would agree to that, but we don't know how long it
will be,
Mr. PALYI. Very true. I would agree on that, but the point is you
create new economic warfare which will make the transitional period
much longer. What would be the consequence, if suppose Greece takes
advantage of this provision. She never could receive private credits;
without private credits operating she never gets over the transitional
period. What is the transitional period ? It is a period during which
one can borrow only from the fund. Once you can borrow on the
open market your balance of payments is all right. You don't need
any more fund, except, perhaps, in a sudden crisis, war and what
75673—45



19

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BRETTON WOODS AGREEMENTS ACT

have you. Normally the balance of payment is stabilized by the international bankers, they step in and credit wherever balance of payment
shortage exists, believing that that credit will come back next season
or next cycle, according to whether short-term or long-term credit.
But if you allow such measures which permit a fellow not to repay
even when things get better, then, of course, you don't receive any
more credit, and equilibrium never will be established.
I went to England this spring. I had hoped when I came back I
could indicate to my clients a number of fine investments in England.
I came back and I said to them, "For heaven's sake, stay out. How
can you invest in a country which is set on never being obliged to repay
your capital? Even a permanent investment may have to be liquidated some day. You might need the money, if for no other purpose
than to pay your inheritance tax and the British openly say—they
do not fool you like some other countries—they tell you very decently
that they are not in a position, Bretton Woods or no Bretton Woods,
to promise you more than interest or dividend on your money, and
that is not absolutely certain. If they get in a jam they may even
stop temporarily that payment."
Under those conditions there is no rational possibility of investing
money in England unless it is by enthusiasts who like to put their
money in somthing to help other people, but usually that is not sufficient to finance international ventures.
Senator FULBRIGHT. If you don't have the fund you still think we
would have to lend money in some other form, do you ?
Mr. PALYI. Yes.
Senator FULBRIGHT.

What is the disadvantage of lending it in this
form?
Mr. PALYI. The disadvantage is putting in a paragraph that they
don't have to pay and put it in such fashion as to permit in effect the
restrictions involved here. If you lend money under this fund the
statute ought to make it clear that you get the money back. If you
think you have to make presents, go ahead and make presents, but
don't put it in this form.
Senator FULBRIGHT. DO you think that this money that is put into
the fund is more likely to be lost or dissipated than money put into
the bank ?
Mr. PALYI. Well, forecasts for the future, as you know, are very
dangerous, because it depends on so many circumstances. That brings
me back to my starting point: How can you discuss Bretton Woods
when three and one-half billion in the Export-Import Bank are also
to be provided and other billions for more governmental credits ? If
you give them plenty of money outside of the fund, it may work perfectly, so long as money is available.
Senator FULBRIGHT. The discussions had the other day were that
the way the fund operates, in the putting in of more of the currency
of the operating member, would maintain always a relatively stable
amount, relative to the gold in the fund and there was less likelihood
of a mutual loss than if you make it a loan through the bank.
Mr. PALYI. Well, you will have the money of the operating member.
What I am saying is that
Senator TAFT. YOU may not have the currency. You may have
their 1 0 IPs.
^



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Mr. PALYI. That is right. They don't have to deposit them in
Washington or New York.
Senator FULBRIGHT. YOU can demand the currency on the I O U any
time. They always have that currency. Do you feel that is fairly
good currency, in the fund %
Mr. PALYI. N O ; because they can introduce foreign exchange restrictions.
Senator FULBRIGHT. NO ; it says you can't.
Senator TAFT. If you are in default for your payments
Senator FULBRIGHT. The only exception was the complete default
by the country, but so long as there isn't a restriction—he said the
restriction, which is distinguishable from a complete default.
Mr. PALYI. Here is the permission to do so. Article VIII, section 4, under convertibility. That is what we are talking about, convertibility. That is another name for repayment. That applies to
any kind of fund. Each member shall buy balances of its currency
held by another member. That does not apply to the balances held
by the bank itself. It has to pay back those.
Senator FULBRIGHT. Are we talking about the fund now? In article IX, page 19, section 6, it says:
To the extent necessary to carry out the operations provided for in this agreement, all property and assets of the fund shall be free from restrictions, regulations, controls, and moratoria of any nature.

That seems very broad.
Mr. PALYI. Yes.
Senator FULBRIGHT.

It says any restriction of any nature, upon a
member of the fund.
Mr. PALYI. TO the extent necessary to carry out the operations.
What is that extent? That extent is not that you have at any time
to give gold or dollars to the fund against the fund's holding of your
currency.
Senator FULBRIGHT. YOU can use the currency at any time for whatever it is worth in that country.
Mr. PALYI. YOU can go in and buy in that country with the permission of that country.
Senator FULBRIGHT. This says free of any restrictions. Why
wouldn't they be free of restrictions?
Mr. PALYI. Excuse me. It says to the extent necessary to carry out
the operations. The repurchasing of balances held by a debtor countrv
is not part of carrying out the operations of the fund. The operations
of the fund have to do with transactions between members of the fund.
The purpose of the operation of the fund is not that the fund itself
shall get its money's worth. There are articles dealing with that question. Article XVI deals with that. Emergency provisions, withdrawal from membership, and so forth. A member may default and
then for so many years it doesn't have to pay back at all.
If you wish me to do so, I will read those articles. Article XVI.
Emergency provisions and liquidation of the fund. Article XV also
deals with that, right, of members to withdraw, compulsory withdrawal, settlement of accounts with members withdrawing:
When a member withdraws from the fund, normal transactions of the fund
in its currency shall cease and settlement of all accounts between it and the
fund shall be made with reasonable despatch by agreement between it and the

fund.




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What is reasonable ? The fund may wait 10 years before it gets
that money. There is no definition of that. It depends on an agreement :
If agreement is not reached promptly, the provisions of schedule D shall apply
to the settlement of accounts.

Schedule D is a schedule of repaying in installments.
Senator DOWNEY. Mr. Chairman, may I ask a question of the Professor here ?
Professor, you have recently stated to the committee here that when
you went to England you found the British Government was unwilling
to guarantee the right of repayment of capital debts incurred by
British citizens. Well, now, that being true, of course, it is very
plainly the judgment of the British Government there that they wont
be able to repay those capital debts.
Mr. PALYI. That is right.
Senator DOWNEY. I think very possibly we can recognize the reasonableness of that viewpoint. That being the attitude of the British
Government, then, of course, the British Government would not consent to the elimination of any such restrictions in this agreement,
would it? Which you think ought to go in. In other words, your
argument here is that there should be certain clauses in this agreement so far as the fund is concerned, that the British and other
governments, we will say, could not and would not accept. That
would merely bring us to the conclusion, would it not, Professor, that
it would be impossible to work out any agreement on this fund that
you would think would be the proper kind of an agreement. Is that
the conclusion from your testimony ?
Mr. PALYI. Well, yes, Senator. Of course, I admit I am no authority on what the British would consent to or not. In fact, I am very
much inclined to think, as you say, that they would feel very badly
about any such proposal. But, on the other hand, we have a little bargaining power too. They need our credits just as badly as you can
imagine, because they are in such a bad position; and, of course, it
might hurt temporarily friendly relations if we would put on the
screws and would demand conditions which they don't like. I admit
that it is a choice, a matter of judgment, whether you prefer that you
are generally loved and liked, and you accept the conditions they like,
or whether you think that you should put on conditions which are
more likely to be helpful to create normal, international credit relations and a genuine early restoration of the international balances.
It is a matter of choice, and I do not feel competent to isll you what is
preferable. It is a matter of judgment entirely.
Senator DOWNEY. Well, I would like to point this out for the sake
of the record. This war so far has been costing us six or seven or
eight billions of dollars a month, and I do not think that the Senate
of the United States or the Government of the United States should
be too greatly concerned about risking a comparatively few billion
dollars in the International Bank and the International Fund.
Now, I would also like to make this statement. I have to go back
to the Senate floor. I think that the Professor undoubtedly very ably
and very rightly is indicating difficulties that will develop in the
transitional period and thereafter in the way of international commerce and international balances; but I certainly am of the opinion



BRETTON WOODS AGREEMENTS ACT

287

that the Government of the United States in making agreements and
treaties from now on must, of course, involve itself in a certain degree
of risk and making of sacrifice.
Senator TAFT. May I ask, though, one question on your comment:
Do you see any reason why, if you can't do this right, you should do it
now at all, or whether you can't wait until it can be done right or
conditions are more normal? This British situation is due to their
block balances. They may make an arrangement with other nations,
India and
Mr. PALYI. NO, Senator; I don't agree with you on that. I think
the conditions won't get any better. The problem will be with us,
because it is not a minor or temporary problem. The British balances, wartime balances, are only a small part of it. The British
balance of payments is fundamentally upset, and Britain will be the
most important single problem in that connection.
But, on the other hand, since you are asking me, and with all deference to the Senator—I don't -mean to contradict or take exception to
what he says—my own personal feeling on the matter, if you permit
me to express it, is that in view of how much we spent another six
billions is not immaterial. It is not just a drop in the bucket; I think
it is a very important issue, that we shall be economical from here on in
view of the terrific national debt we are running. And, moreover, it
is not only a question of what we are risking. I would be all for risking a substantial amount for the benefit of international stabilization,
but the point I am trying to drive at—as a matter of fact, I haven't
even finished yet. There is one more point in that connection I didn't
mention yet. The point I am driving at is that this does not accomplish it. We are not just taking a risk, but we take it under conditions
which are not necessary, which are unnecessarily risky, to put it this
way, which, most likely, won't lead to stabilization. They mean foreign-exchange restrictions as the British plan them, with the result
that they can proceed as they wish. Suppose they have a Labor
government elected next month in Britain, and suppose that Labor
government proceeds on its program. I hope it won't. Programs
are not always for being kept, but still they might be. If all the
nationalization takes place, and all the expansion of social-security
payments in addition to the present ones, and all the full employment
and higher standards of living programs are instituted, with the result
that Britain's balance of payments will be badly distorted, worse than
it is anyway, then a fundamental disequilibrium will exist there. The
necessary consequence will be that Britain will apply for exchange
restrictions, with the result that we spent so much money on Britain,
but we don't get any stabilization. What will we do when the money
is exhausted ?
That brings me to my last point in connection with foreign-exchange
regulations, namely, the point that if scarcity of the fund's holding
arises, then every member is entitled to institute foreign-exchange
restrictions without limitation. Now, scarcity of the fund's holdings,
unless we spend much more than the 3 billions, is bound to arise under
the terms of the fund. They are bound to be exhausted in 4 years,
if I am anything like a connoisseur of balances of payment. The
British deficit alone is estimated now at at least iy2 billion dollars a
year, not counting the deficits of many other countries. After that



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every country can start on foreign-exchange restrictions without any
inhibitions whatsoever. Then we are back where ? Where we started.
We spent the 2.75 billion dollars, which is, as you say, a comparatively
small amount. And what do we do then ? Spend another 2.75 billion
dollars for another short period? The problem is not whether we
risk or not risk. You forgive me, Senator, for discussing these questions openly.
Senator DOWNEY. Professor, I am very anxious to have you; but, of
course, as has already been suggested, we live in a world of relativity.
We know what the cost of the past 20 and 30 decades has been. If we
continue the same kind of government in the world, and lack of international relationship, we will probably have the total destruction of
all civilization, and that is one reason why I, at least, am not disturbed
over the fact that the United States Government in the next few years
is going to hazard a few billions on an attempt to build a better and a
more stable world. Assume it does seem that at the end of 5 years
we may have further exchange difficulties. And I am very much with
you on that. I can see that Great Britain would have great difficulty
in allowing her tourists freely to expand the limited exchange that
Great Britain would have. I sympathize with Great Britain in that,
and I see that difficulty. I see the difficulty in the case of the other
nations. But my viewpoint is that with our immense resources of gold
and credit and production we well can afford to take what is really an
inconsequential item. Why, here we are freely and happily spending—•
and the distinguished Senator from Ohio I think voted for them all—
maybe a hundred billions a year.
Senator MILLIKIN. "Borrowing" is the word. Borrowing.
Senator TAFT. I would say if
Senator DOWNEY. We are spending; borrowing it from our own
citizens.
Senator MILLIKIN. We are borrowing it from our children.
Senator DOWNEY. Oh, Senator!
Senator TAFT. I want to suggest that the moment you apply your
war standards and policies to peace periods the country is gone. That
is all. My suggestion is that the moment the war ends that is an overwhelming reason that no one could question but that from the time the
war ends you must apply an entirely different standard or the country
is broke.
Mr. PALYI. Senator, your argument implies, to my mind, if I understand it properly, that there is no third alternative—either we do nothing or we do this. I think we could do a third thing. We could
spend as much or more, and we should, if necessary, but under terms
which promise with reasonable certainty that the results will be accomplished, which would mean, if necessary, to put a little bit of screws
on the British fingers. Maybe they don't like it. That is very bad. I
have often seen that debtors don't like terms, especially when they are
in the process of being reconstructed or rehabilitated. They often
object to the terms of rehabilitation, and Britain is in that position.
That is why we should spend money on her. That is the only reason.
Senator TAFT. But your suggestion is that you spend the whole
money and don't get anything for it under this particular plan ?
Mr. PALYI. That is right. I think the plan is not objectionable
except for certain paragraphs in it, especially for that construction



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289

which permits nations to evade their obligations under it, while the
whole thing should be construed so as to make them fulfill their obligations. Where do we get if we put in six paragraphs permitting
them-not to pay under such and such and such conditions ? It is not
possible to build up a reasonable, genuine credit structure on the basis
that whenever there is trouble you just don't pay. We know that
people don't pay when they get in trouble. We know that by experience. But we don't put it in every credit contract, "Please don't pay
if it gets to a point where your money is a little scarce." [Laughter.]
You will excuse me for making a joke, I don't mean to be facetious
on a very serious matter. I just try to exemplify the spirit of it.
There is a genuine humanitarian spirit among us to help debtors which
I can fully understand, and I can fully understand that you don't deal
with a great power like Russia or like Great Britain and France, on
terms like you deal normally with an individual debtor. I admit
that you have to use much more tact and restraint. But I haven't
seen in international affairs—I am a specialized student of international financial affairs—I haven't yet seen a treaty between governments or between private individuals in which such a system of clauses
is introduced that they don't have to pay under certain circumstances.
It is understood implicitly that you don't pay if you can't. You don't
have to say that specifically. This reads as an invitation to wholesale
defaulting which should be eliminated from this document. Of
course, they won't like it, but that is no reason to do everything they
like. After all, we are helping. Even if the amount is not too big
for us, it is, after all, a substantial amount, and for them it may be
the difference between all kinds of alternatives to get that. We are
entitled to some consideration of our own point of view, too, and if
I may say in that connection one word about the Russian system
Senator DOWNEY. Professor, before you go ahead: While I dislike,
Mr. Chairman, to divert at all from the very related issue, I just
cannot let the comment of the distinguished and beloved Senator from
Colorado go uncontr a dieted. The Senator said that our children will
have to be paying the sacrifices for this war. There is no greater fallacy than that existent in the human mind. The only time sacrifices
of a war can be made are during that war. It is the boys who live at
that time that are dying, wounded. It is the people who live at that
time who give up the automobiles and the gasoline and the food and
the meat. Now, except to the extent there is a sacrifice of national
resources, if we have general employment 25 years from now, we are
going to have more automobiles and more rubber and more food and
more everything else. We can't be able to make sacrifices at that
time.
Now, as to passing the burden of this indebtedness along to our
children, our children will also own the bonds and the intebtedness.
There are two sides to the indebtedness.
Senator MILLIKIN. But not
Senator DOWNEY. One is the credit and one is the debit.
Senator MILLIKIN. But not
Senator DOWNEY. And it happens in this case that the American
people own both. Collectively as a government we owe $300,000,000,000 to our own citizens as individuals.
Senator MILLIKIN. But




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BRETTON WOODS AGREEMENTS ACT

Senator DOWNEY. We both own and owe that debt.
Senator MILLIKIN. But they do not own the debt pro rata.
Senator DOWNEY. NO. It will be owned in about the same proportion that people will have to pay income and inheritance taxes, and
just about to the same extent that people get back the income from that
indebtedness they are going to have pay income taxes for it if the
present party remains in power.
Senator TAFT. I don't quite understand. Here are millions
Senator DOWNEY. Mr. Chairman, I've got to go. We will meet that
issue the next time. [Laughter.]
The CHAIRMAN. Let us get back to the Bretton Woods agreement.
Senator DOWNEY. Professor, I have enjoyed your testimony very
much.
Senator TAFT. YOU had one more clause of this ? Did you have one
more clause ?
Senator BUTLER. I have one question.
The CHAIRMAN. DO you want to ask a question ?
Senator BUTLER. Yes.
The CHAIRMAN. Certainly.
Senator BUTLER. The professor in his remarks just a moment ago*
referred to this document as a treaty, didn't you'?
Mr. PALYI. NO. I spoke of treaties, or I should say "contract"?
Senator BUTLER. YOU spoke of treaties covering
Mr. PALYI. I meant contract. Excuse me.
Senator BUTLER. Covers items of exchange like we are covering here
in this.
Mr. PALYI. Covering international credits.
Senator BUTLER. Yes; international.
Mr. PALYI. I suppose that is the reference you bring back, Senator.
Senator BUTLER. International credit is usually covered by a treaty
between
Mr. PALYI. Well, not necessarily. It can be just a contract.
Senator FULBRIGHT. An executive agreement. [Laughter.]
Senator TAFT. Did you have one other thing that you called attention to?
Mr. PALYI. Well, just——
Senator TAFT. Which perpetuates and legitimizes exchange——
Mr. PALYI. The last one was the time when the scarcity of fund
holdings arises.
Senator TAFT. Oh, yes; that was it.
Mr. PALYI. After that full-fledged foreign exchange restrictions
are open to every member; and the likelihood is, as I say, in view of
the limited amount in the fund, and is the terrific deficit in some
balances of payment, that that element will happen as soon as 4 years
after the fund begins operation.
Senator TAFT. YOU say 4 years. Why 4 years ?
Mr. PALYI. If my memory doesn't deceive me, the means of the fund
are supposed to be, distributed in 4 years' time. In other words, each
member country can draw one-fourth of its quota in each year.
Senator TAFT. However, if all the members drew dollars except the
United States, they could do it all, draw the dollars of the fund in
2 years.
Mr. PALYI. That is right.



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291

Senator TAFT. Isn't that correct ?
Mr. PALYI. That is right. It could be much shorter, much quicker
than 4 years' time.
Senator TAFT. In fact, it could be in a year and 2 months if the fund
were sufficiently prompt in their response.
Mr. PALYI. That is right. I gave them the benefit of doubt.
The last point I would like to bring up in connection with the fund
has to do with Russia; rather, I should say, with the question of individual countries entering into the fund. There is nothing in the
fund's provisions excluding a country which has a substantial surplus
of gold or foreign exchange could not use the fund. For example, it
may have a foreign exchange surplus in the form of private holdings
and may not want to take them away from the private owners, and
therefore nominally its exchange position may be weak, but actually
if it would collect the holdings of the citizens, say the dollar holdings,
they would become very substantial. And I am thinking especially
of France, which has introduced measures to collect the foreign exchange holdings of the citizens, but very ineffective measures so far.
Now, then it is possible that a country which we know positively has
plenty of dollars or gold and other foreign exchange to pay for its
purchases would borrow from the fund to the limit of its quota.
Senator TAFT. Well, there is nothing to restrict its borrowing, I
take it. Eussia can borrow, according to Mr. Brown, as I understand,
supported by Mr. White—Russia can borrow $300,000,000 a year and
use it to rebuild its factories and power plants with.
Mr. PALYI. For what purpose it is borrowed—on that there is no
restriction a't all. I pointed that out, that there is no difference between the fund and the bank in that respect.
Senator TAFT. In spite of the fact they may have gold with which
they could have paid for it.
Mr. PALYI. Yes. The point I am driving at now is that they may
have a very substantial gold reserve, but because, for example, they put
that gold reserve into some other special holding, like Dr. Schacht
did—when he didn't want Germany's American and British creditors
to know that he had more than 70,000,000,000 marks, he lent the gold
to the I. G. Farben, which carried it under diverse assets and drew the
gold. It was credited to the Reichsbank on the books of the Chemical
Trust, but it wasn't available, and in the books of the Reichsbank there
was nothing to show it. Schacht asserted that he can't pay more than
what he pays, because he has no more gold.
Such little tricks are easy, and it doesn't need to be a malicious trick
as in the Schacht case. It could be perfectly normal. A normal
country doesn't force anybody to disclose his gold or foreign assets.
It could perfectly take the attitude that, "We are a free country, and
everybody may own as much gold as he pleases, but the central bank
hasn't any." How can we compel a country to introduce confiscation
by force of the foreign exchange holdings of its citizens if that country
doesn't want to introduce that measure? There is nothing in this
fund to do that.
Senator TAFT. It is argued, however, Dr. Palyi, that this country
has to repay into the fund, has to buy back its currency.
Mr. PALYI. I am speaking of the case that the country wants to buy
something abroad, say American machinery, and buys that and can't
pay, and goes to the fund and borrows according to its quota.



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Senator TAFT. Yes; that is all right. But what I suggested is
that thereafter, the next year or so, they are obligated to repay, to
buy back their currency if you show that they have in the country
reserves of gold and dollars, including private dollars, I think.
Mr. PALYI. NO. They can still say, "We don't have it." They don't
have to know that there is in the country any other dollars or gold
in private holdings.
Senator TAFT. Don't they have to count that ?
Mr. PALYI. There is nothing in the statutes which would say every
member has to collect all the gold in foreign exchange of its citizens
in the central bank.
Senator TAFT. Well, I thought there was something in the act.
Senator TOBEY. It has got to disclose the amount of gold. They
definitely have to disclose the amount of gold. That is a condition.
Mr. PALYI. What the central bank and the other authorities have,
but not what private citizens possess.
Now, in the case of France, I am thinking about the French Government actually can't even know it all, because a lot of Frenchmen have
substantial balances in Switzerland and Spain which the Swiss banks
and the Spanish banks don't disclose. France really could, by proper
measures of taxation or other inducements, get out of its citizens such
balances, but she might prefer to borrow from the fund. In other
words, because of the fund's lending mechanism every member is
entitled up to its quota to borrow money or to make payments via the
fund for any legitimate purchases without regard to the actual foreign
exchange position of that country. The case is particularly important with reference to Russia, because in the Russian case the whole
idea of stabilizing the ruble is simply meaningless. There is no such
thing as rubles in international relation, that we stabilize.
Senator MILLIKIN. Mr. Chairman, may I ask a question, please?
The CHAIRMAN. Certainly.
Senator MILLIKIN. That brings me to this question that I should
like to ask you: Do you regard it as practicable or as feasible to
achieve a real stabilization between the currencies of countries, on the
one hand, that have a free or reasonably free economy and countries,
on the other hand, that do not have private capital, that disregard
profits motive, and that are completely regimented ?
Mr. PALYI. I don't like to generalize, because
Senator MILLIKIN. That is a very general question, of course.
Mr. PALYI. But I am speaking of the Russian system as it is, as
it handles its finance and its monetary system; and presumably some
other countries in central Europe will have the same system. Now,
under that system the stabilization of the currency in foreign relations
is a meaningless term.
Senator MILLIKIN. Yes?
Mr. PALYI. There is no foreign exchange in that country.
Senator MILLIKIN. NOW, may I ask you another question: Without
mentioning the names of any countries, is there a considerable number
of countries, included in those who will participate in the fund, who
have a bad reputation for fiscal honesty ?
Mr. PALYI. For default on debts?
Senator MILLIKIN. Yes.




BRETTON WOODS AGREEMENTS ACT

293

Mr, PALYI. Well, Senator, if you don't ask me to name those
countries.
Senator MILLIKIN. I don't. I say without naming them. I say
I don't want you to name them.
Mr. PALYI. Yes; there are a lot of them.
Senator MILLIKIN. We would have no trouble naming them, but
Mr.

PALYI. NO.

Senator MILLIKIN. I think we will all agree that there are many
such countries.
Mr. PALYI. Quite a few.
Senator MILLIKIN. And we could all easily name them.
Senator TAFT. The thing that I had in mind, Mr. Palyi, was that
your repurchase is based on the monetary reserves that you may have
accumulated. Then the monetary reserve is defined in article X I X as
being the central holdings net, and to these net holdings shall be added
the funds deemed to be official holdings of other official institutions
and other banks; and in (c)—XIX (c)—it says the holdings of other
official institutions or other banks within its territories may, in any
particular case, be deemed by the fund to be official holdings to the
extent that they are substantially in excess of working balances; so I
suppose you count your other bank reserves but not those owned by
individual corporations; is that correct?
Mr. PALYI. That is right; or by individuals.
Senator TAFT. Or by individuals.
Mr. PALYI. What about the French peasant holding gold ? France
*
is probably, next to India, the second greatest gold treasuring country
in the world, but probably a substantial part of it is in the hands of
peasants and similar people, in small quantities distributed. Yet
this gold could be gotten out of them with proper taxation measures;'
or, if they wanted very greatly agricultural machinery, and they have
to buy it by all means, they will come out with their gold. But if you
have a nice little mechanism by which they can get the agricultural
machinery without parting with their beloved gold reserves, then they
can keep the gold reserve. That is the way it will most likely work,
and the French Government that can under those conditions put the
screws on the peasant hasn't yet been born, in my opinion.
Senator TAFT. Also that same question arises in connection with
the declaration of the dollar being a scarce currency. The governments might draw all the dollars down, and then their individuals
might hold onto their own dollars; may they not, so that the dollar is
scarce, but it is only scarce in the fund ? Is that a possibility ?
Mr. PALYI. The same situation. The Frenchmen may have a neat
private dollar reserve, but the French Government may be short of
dollars.
Senator TAFT. And might have drawn all the dollars out of the
fund they could draw out of it?
Mr. PALYI. The Frenchman who might benefit by this system by
buying something in America he needs so badly—consumers' goods
or production goods—may be the same Frenchman who holds the
dollar reserve in his pocket with which he could buy; but he can gety>
with the aid of the fund, automatically, the thing he wants without
parting with his dollars.




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Senator FULBRIGHT. DO you think the fact that these other nations make a contribution will not give them, any interest in the
preservation of the fund ? I mean, they will approach this purely as
an opportunity to grab a few dollars and then let it take care of itself ?
That is, it has been said that each nation making a contribution and
regarding this fund as a reserve will be very much interested in
preserving it, and therefore they will not approach it in the view of,
"Well, here's a kitty that's free, and we just take what we can and
then let it go."
Now, if they approach it that way, which is apparently the way you
believe they will, then it is, I would say, bound not to work. Is there
any incentive you can see in the minds of these various countries to
preserve this fund and use it only in an emergency, so to speak ?
Mr. PALYI. I don't see any. Maybe there is. After all, that is a
matter of judgment as to how their minds will work. But as the fund
stands, that is the situation with those quotas or what you call them,
that is paid in.
Senator FULBRIGHT. It is the quota.
Mr. PALYI. Contributions?
Senator FULBRIGHT. Yes.
Mr. PALYI. The contribution consists of paper money, except for a
very small amount of gold which is really not taken away from them.
Senator FULBRIGHT. Yes.
Mr. PALYI. In case of liquidation, if the whole thing goes broke,
they get it back. France's gold contribution is not responsible for
dollar scarcity, for example, so they don't lose that under any circumstances, unless somebody buys in France with it and remains a debtor
to France. Now, only so far as they are creditors have they an interest so far as the contribution represents only a claim to borrow.
They have no interest except to get the most they can get out of it.
And I am not trying to insinuate that the members of the fund will
come in and get their money and run away as fast as they can. What
I am speaking of is that with the construction of the fund, and given
human nature, and especially given the fact that these people are in a
bad shape, they will borrow because they need* to borrow.
Senator FULBRIGHT. Well, but you just gave an example and said
that there is all this money, they have dollars, but since they can get
it they won't use it. That seems very definitely to imply that they
are not going to make use of their own funds; they just look at this
fund as a place to get some free money.
Mr. PALYI. That is a special case to which I referred; that of a
country that really has the gold reserve but won't use it to repay its
debts, or would borrow instead of using it. That special case might
occur. I didn't say that they all would do that, or even many would
do that, but it might occur. And I especially point out that I don't
imply that they would do that maliciously, which is possible; there
are malicious people in the world still left over. Suppose they are
not malicious; but a situation exists like in France that they may not
collect the fund at home although they have it but they don't go to the
trouble. They could collect it if they would use very sharp taxation or
confiscation measures, or do this or that, but for political reasons they
don't choose to do those things and consequently they just let it go.
Senator FULBRIGHT. Yes.



BRETTON WOODS AGREEMENTS ACT

295

Mr. PALYI. The fund gives them a possibility to get away with
that kind of policy, which I hope will be exceptional.
Senator FULBRIGHT. Yes. Of course, it would seem to me that any
of them with any wisdom at all would see that if they abused the
fund in that way it will suddenly come to an end, and they will have
ruined their own credit standing, just as they would if they defaulted
on any other loan, if they abuse it.
Mr. PALYI. NO, it is not so, because according to the statutes of
the fund if you exhausted your quota and couldn't pay, it is just too.
bad. As a matter of fact, the spirit behind this document, as expressed
in the original Keynes program was that if the fund comes to an end,
if a scarcity of the crucial currency arises, or of gold, which is the
same, then the responsibility is on the creditor: "Why, if you would
take enough imports, then there wouldn't be any shortage of your
currency. Why doesn't he buy more from foreign countries?" The
fallacy in that is the assumption that it depends on us whether we can
buy more than we sell, overlooking that the American balance of trade
is always favorable whatever foreign trade policy we pursue.
Whether we have high tariffs or low tariffs we always have a surplus
in the balance of trade because we are such a fortunate country that
we product both raw materials and industrial goods and do so at high
efficiency. It seems very unfortunate that we are so fortunate, but the
consequence is that other countries always have a deficit in their trade
balances against us.
Now, according to this idea, this is our fault, as if we could correct
it. As a matter of fact the advocates of tariff abolition argue in a
fashion which is misleading, in my opinion, because they overlook
that if we won't have a tariff our own cost of production would fall
and we could export more. Under free trade we might have a bigger
export surplus than under the tariff.
Senator FULBRIGHT. I hope that you understand that.
Senator TAFT. Surplus.
Senator FULBRIGHT. We would be better off if we didn't have any
at all. [Laughter.]
The CHAIRMAN. Are there any other questions ?
Senator TAFT. Mr. Chairman, I would like to ask the witness. He
has pointed out the failure to get rid of exchange restrictions, the
legitimatizing of exchange restrictions themselves. What about the
currency devaluation features of the fund ?
Mr. PALYI. I didn't delve with them so much, for two reasons. One
is that the fund is pretty specific on that, limiting them to a minimum.
There is nothing like the provision that introduces foreign exchange
restrictions with regard to introducing devaluation. That is much
better taken care of on the whole, and that definitely is a progress.
It is perhaps the most valuable aspect of the fund's statute, that it
brought up the problem of competitive devaluations and tried to tackle
it, except for the case of a concerted devaluation of all countries, which
of course would work to the benefit of some countries which need it
badly and to the disadvantage of some other, and except for the case
of freedom to devalue after the scarcity of the crucial currency has
been declared. Otherwise I have very little to quarrel with on that
score.




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BRETTON WOODS AGREEMENTS ACT

Senator TAFT. Of course, a country has the right to devalue to any
extent if there is a substantial disequilibrium created by your internal
policies.
Senator MURDOCK. Fundamental disequilibrium.
Mr. PALYI. Quite right. But then the fund has to agree on it, so
the fund
Senator TAFT. Well, the fund doesn't have to agree in such case.
They cannot object on that ground.
Mr. PALYI. Well, they may be clever enough to find another ground
on which to object. There I would trust the management of the
fund, because the w^hole spirit of the fund is to keep devaluations to
the minimum. Maybe I am too optimistic on that score, but I trust
the fund's attitude in that respect. However, I like to point out in
that connection that the real reason why I don't worry too much about
devaluations is not what the fund's statutes say about it but because
nobody wants them any more. Devaluations have become very unpopular. The real method of international monetary warfare in the
future consists of foreign exchange regulations.
Nobody really wants devaluation. Take the case of France; they
just hang on to a ridiculously high valuation of the franc. Why?
I don't think I am wrong in assuming that the reason is that devaluations are very dangerous when the monetary system is highly inflated.
When we devalued in a deflation, in a depression, then it had the
effect of—it had no major effect at home. Either it had no effect
immediately or the effect was to raise prices, and that was desirable
at the time; but when you have an inflated monetary structure, what
will happen to your price system? People don't want new devaluations because they are the signal for prices to run away; and therefore
nobody, no responsible financial statesman with whose ideas I am
familiar, thinks in terms of bringing them about voluntarily, unless
he is forced into new devaluations; and, that seems to be the general
spirit of the agreement.
Lord Keynes, the leading advocate of devaluations, now advocates
stabilization unless very extraordinary circumstances arise, admitting
not more than 10 percent devaluation as a rule. They fear a runaway
inflation to break in the markets if they start to monkey—pardon for
the unliterary expression—with the gold content of their currency;
while on the other hand foreign exchange regulations are invisible.
The public does not notice them. The people only notice that the
pound or the franc is at such and such a par, but that you can't go
outside of the country, and you cannot buy abroad, and things like
that, foreign-exchange regulations, don't affect the judgment of the
public about the value of the currency and don't drive it into the
markets.
The CHAIRMAN. Are there any other questions ?
Senator FULBRIGHT. TO sum up your principal criticism, it is those
paragraphs which do give them permission not to pay under certain
circumstances ?
Mr. PALYI. Yes.
Senator FULBRIGHT.

Would you say, just assuming that those were
taken care of—would you think then the fund would serve a useful
purpose?




BRETTON WOODS AGREEMENTS ACT

297

Mr. PALYI. Absolutely, because the implication would be that the
debtors have to clear something at home so as not to get into trouble.
They would have to clean their houses so far as is necessary or possible
to reform. On the other hand, the fund management should have a
free hand in controlling them without too radical measures of balancing their budgets.
Senator FULBRIGHT. It could serve a little better purpose, I'll say,
than just taking the same amount and lending it to them bilaterally
by loans. There is some merit in getting the 44 nations together in
agreeing to certain things.
Mr. PALYI. Definitely.
Senator FULBRIGHT. IS that right ?
Mr. PALYI. I would agree, definitely. For example, in the case
of devaluations I think it is a very useful thing that devaluations are
at least stamped as not desirable. That is an important step forward
on which the authors of this program ought to be congratulated,
especially if you visualize what a sacred cow the freedom to devalue
the currency is in some countries, like in Britain.
Senator FULBRIGHT. If you will assume this, we will just assume
that we had 6 billion to lend. You wrould say it is better to at least
take part of it and lend it in this fashion and part in the other
fashion
Mr. PALYI. Yes.
Senator FULBRIGHT.

Than to put it all in the bank and to lend it all
in just straight bilateral loans; is that right ?
Mr. PALYI. I don't believe in the bank at all. The bank is nothing
else than another stabilization institute without any regulations and
limitations.
Senator FULBRIGHT. Well, our bankers think that they can examine
these loans, and they much prefer it.
Mr. PALYI. But I am not a banker.
Senator FULBRIGHT. What?
Mr. PALYI. I am not a banker.
Senator FULBRIGHT. Oh. I thought you were a banker.
Mr. PALYI. I was an economist retained by bankers, and I am still,
but anybody can retain me as a consultant.
Senator FULBRIGHT. Oh. Well, the fund is far better than the
bank?
Mr. PALYI. The fund is the only thing, in my opinion, worth discussion. The bank ought to go up in the fund and be part of it. If
you want to do the job, put it in the fund.
Senator FULBRIGHT. I see.
Mr. PALYI. But I started out on that perhaps before you came in,
Senator.
Senator FULBRIGHT. YOU would prefer, if anything, to abolish the
bank and take that capital and put it in the fund to make it stronger?
Mr. PALYI. That is right.
Senator TAFT. If it were a perfect
Mr. PALYI. If this could be corrected.
Senator FULBRIGHT. Yes.
Mr. PALYI. What I pointed out is, I think, the shortcomings of the
fund and very bad shortcomings, creating new disequilibriums instead
of correcting them.



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BRETTON WOODS AGREEMENTS ACT

Senator FULBRIGHT. The principle being that we should make them
promise to pay. We give them a legitimate "out" of their promise;
is that it?
Mr. PALYI. A legitimate "out" on almost any pretext—almost, if
I may exaggerate a little.
The CHAIRMAN. Did you say anybody could engage you ? Is that
right?
Mr. PALYI. Well, I was sort of joking. I mean to say that I am
not sold on banks. As a matter of fact, I have nonbank clients, too.
The CHAIRMAN. I see.

Well, I think we have concluded the hearing for today, haven't we?
Senator TAFT. Of this witness.
Mr. CHAIRMAN. I have here a table prepared by the research assistant to the minority leader, at a good deal of trouble, showing the debts
of all the foreign governments to the United States, those which are
in default and those which are partially in default, those which are
in default as to interest; and I think it might be valuable as part of
the record to show the condition.
The CHAIRMAN. Yes. Does that relate to the Government, to our
bonds ?
Senator TAFT. TO our bonds.
The CHAIRMAN. Government bonds ?
Senator TAFT. Yes; bonds of the governments that are in default.
The CHAIRMAN. Very well.
(The table submitted by Senator Taft appears on p. 549.)
Senator TAFT. Mr. Chairman, is the counsel for the Treasury here ?
Mr. LUXFORD. Yes.
Senator TAFT. I would

like to ask a question if I may. It would
save some time later.
The CHAIRMAN. I S he here?
Senator TAFT. Yes, he said he was.
Senator MURDOCK. YOU can sit right there [indicating].
The CHAIRMAN. Mr. Luxford, will you come up here?
STATEMENT OF ANSEL F. LUXFORD, ASSISTANT TO THE SECRETARY, TREASURY DEPARTMENT, WASHINGTON, D. C.
Senator TAFT. In the bill it contained a provision as to the money
that is put up in this fund. The Secretary of the Treasury is authorized to use a billion eight of the gold now in the Stabilization Fund.
Mr. LUXFORD. That is right.
Senator TAFT. And he is authorized to pay the balance of $950,000,000 for the purpose of making these payments. I read at the bottom of
page 8 and the top of page 9:
The Secretary of the Treasury is authorized to use as a public-debt transaction
not to exceed $4,125,000,000 of the proceeds of any securities hereafter issued
under the Second Liberty Bond Act, as amended, and the purposes for which
securities may be issued under that act are extended to include such purpose.

Mr. LUXFORD. That is right.
Senator TAFT. I don't understand what that means or how it can
be done that way.
Mr. LUXFORD. Senator, the first precedent for that was in the creation of the Eeconstruction Finance Corporation in 1932. Since that
date it has been



BRETTON WOODS AGREEMENTS ACT

299

Senator TAFT. Well, now what precedent? What did you do there
in that case?
Mr. LUXFORD. Just this exact language was employed.
Senator TAFT. Well, what ? To provide what ?
Mr. LUXFORD. What it provided was that the
Senator TAFT. For the original capital for the RFC ?
Mr. LUXFORD. Yes; to provide capital for the RFC. The instruction to the Secretary of the Treasury by the Congress was, obtain the
money by public-debt transaction, which means in effect that he borrows the money and applies the money to this investment. Now, that
was originally done for the first time in 1932 with the RFC, and every
extension of the RFC's capitalization since that date has been by that
purpose.
It has also been used in the capitalization of the Federal Farm Mortgage Corporation, the Federal Deposit Insurance Corporation, the
HOLC, the United States Housing Authority, TVA, and the Commodity Credit Corporation.
Senator TAFT. Well, how do you get around the Constitution ? The
Constitution says no money shall be drawn from the Treasury but in
consequence of apprporiations made by law, and a regular statement
and account of the receipts and expenditures of all public money shall
be published from time to time. How can you
Mr. LUXFORD. I would believe probably that had been raised before,
but the answer to that is
Senator TAFT. I presume so, but what is the answer to it?
Mr. LUXFORD. The answer is that that amounts to an appropriation
under the Constitution, because Congress
Senator TAFT. AS a matter of fact it is not an appropriation act.
Under the Rules of the House it would have to go to the Appropriations
Committee if it were an appropriation. It isn't an appropriation.
It is an authorization. I mean I don't see that. That would make
this an appropriation bill if that is an appropriation.
Mr. LUXFORD. Well, the answer I am giving you, Senator, is that
by a very definite House and Senate practice you have been using this
method of financing investments by the United States. The distinguishing feature-—you may have more than one way of appropriating, and this procedure has been used where you are investing capital
and not making an outright expenditure like payment of salaries.
Senator TAFT. Well, I don't understand that. I don't think it is a
proper practice myself. I don't know how we got into it, but it seems
to me——
Senator FULBRIGHT. What we do with Commodity Credit, you were
discussing the subject like this, don't you remember, in order to avoid
them going to appropriation ?
Senator TAFT. Well, this question of whether you have a corporation—if you have a corporation, you may say that corporation can
borrow money and spend it for certain purposes. That is not a Government obligation then, and that money never goes in the Treasury.
Mr. LUXFORD. It is a Government obligation in the sense that the
United States Government guarantees it.
Senator TAFT. Well, it may guarantee it, but the money never goes
in the Treasury. This money, you issue U. S. bonds, and you take the
money rigb^t into the United States Treasury, and the Constitution
75673—45



20

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BRETTON WOODS AGREEMENTS ACT

says that no money shall be taken out of the Treasury but in consequence of an appropriation made by law.
Mr. LUXFORD. The point is, the obligation of the United States
is the same. Under the Commodity Credit Corporation you are guaranteeing that obligation just the same as if it were a U. S. Government
bond.
Senator TAFT. Well, if they were the same I would say this would
apply to that also, but I don't think it is the same. It only seems to
me that it is a way of taking out of your budget what are in fact expenditures of the Government and ought to be included in this annual
statement of receipts and expenditures of all public money, and it
ought to be listed as an appropriation.
Mr. LTJXFORD. Well, certainly this will show up in the daily statement of the Treasury. There will be no concealment of this investment. The point, however, is that you have a tradition starting in 1932
that where you are not really spending money, but you are investing
it like in TVA and RFC, you put it into a separate category.
Senator TAFT. I suggest that anything started in 1932 or since then
is not a tradition.
Mr. LUXFORD. Well, that is a question.
Senator FULBRIGHT. It is just bad practice; is that it? [Laughter.]
Senator MURDOCH. 1932.
Mr. LUXFORD. That is right.
Senator MURDOCK. Prior to the time the Democratic administration
came in.
Mr. LUXFORD. That is right.
Senator MURDOCH. SO, if it is a tradition, it is a Republican tradition.
Mr. LUXFORD. It started in 1932.
The CHAIRMAN. Well, the committee will adjourn until tomorrow
morning at 10: 30, over in the other building.
Senator MURDOCH. Oh, yes, Mr. Chairman.
The CHAIRMAN. Yes. One minute.
Senator MURDOCH. I have again heard from Rene Leon in New
York, who is very anxious to appear before the committee, and advised that he has telegraphed you and I think written you a letter,
and I agreed that I would call his desire to your attention, that he still
wants to appear.
The CHAIRMAN. Very well.
Senator TAFT. DO you know which side he wants to appear on?
.Senator MURDOCH. I don't know. I have no idea.
(Whereupon, at 4:45 p. m., an adjournment was taken until tomorrow, Thursday, June 21,1945, at 10: 30 a. m.)




BRETTON WOODS AGREEMENTS ACT
THURSDAY, JUNE 21, 1945
UNITED STATES SENATE,
COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C.
The committee met at 10:30 a. m., pursuant to adjournment on
Wednesday, June 20, 1945, in room 301, Senate Office Building, Senator Robert F. Wagner (chairman) presiding.
Present: Senators Wagner (chairman), Murdock, McFarland, Fulbright, Tobey, Taft, Capper, and Millikin.
The CHAIRMAN. The committee will come to order.
Mr. Sproul, I need not tell you what we are considering now. We
will be delighted to hear from you, I am sure.
STATEMENT OF ALLAN SPROUL, PRESIDENT, FEDERAL RESERVE
BANK OF N E W YORK, N E W YORK, N. Y.
Mr. SPROUL. Mr. Wagner, I am glad to be here. I think as all of
the members of the committee know I am president of the Federal
Reserve Bank of New York, and all of my business life has been spent
in the Federal Reserve System. It has been a career with me. I
have no prepared statement, but I have some notes from which I
would like to talk, if I may, before getting down to the questions
which you may have.
The CHAIRMAN. Very well.
Mr. SPROUL. These international monetary proposals which have
been brought forth in the past 3 years or more have been studied by
the Federal Reserve Bank of New York and the directors and officers
have expressed their views in three memoranda sent to the Board of
Governors of the Federal Reserve System at various stages of the discussion. However, since consideration by the House, and passage of
legislation with amendments, the matter has not been formally and
officially considered by the bank. Therefore I speak only for myself
and nobody speaks through me.
Senator MURDOCK. On that question, Mr. Sproul, it is difficult for
me to understand how a man in your position any more than a man in
my position can speak individually. I do not mean you should be
denied the right to attempt to speak individually but it seems to me
that nobody holding the position you do or the position I do can speak
individually. Whenever we speak it is just impossible to divorce
ourselves from our position and speak as individuals. So, I am quite
sure that whatever statement you may make will be construed as a
statement coming from you in the position you hold. Don't you agree
with me %



301

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BRETTON WOODS AGREEMENTS ACT

Mr. SPROUL. It must come from me in the position I hold but as an
individual in the position I hold and not as official representative of
my board of directors. I conceive it to be my responsibility on matters of great national interest, in which I perhaps have some competence and of which I have some knowledge, to p'resent my views.
If asked by the Congress or a committee of the Congress to presenjt
my views, it is my duty to do so. After a proposal becomes law it is
my duty to help to carry out whatever function the Federal Reserve
System may have under the law, wholeheartedly and enthusiastically.
Senator MURDOCK. Are your views in accord with the board of directors of your bank ?
Mr. SPROUL. My views were in accord with the view^s or the board
of directors of my bank up to the time of the House legislation. As I
say, we have not formally and officially considered it since then and I
cannot speak for all the board of directors of my bank as to whether
their views would be in accord with mine.
Senator MURDOCK. That is the largest bank in the System.
Mr. SPROUL. Yes, it is.
Senator MURDOCK. The largest
Mr. SPROUL. In terms of total

bank in the world, is it not?
assets it is the largest bank in the

world.
The CHAIRMAN. Had they taken an attitude on the monetary provisions of this bill ?
Mr. SPROUL. Prior to the passage of the House legislation they did
prepare the three memoranda I mentioned which were sent to the
Board of Governors of the Federal Reserve System.
Senator MURDOCK. Would you say that the attitude you will express
this morning is in harmony with the attitude of the Board of Governors
of the System ?
Mr. SPROUL. NO ; it is not, I should say.
Senator MURDOCK. IS it in conflict with their views ?
Mr. SPROUL. I think it is in conflict with the views of the Board of
Governors of the Federal Reserve System as presented in a statement
to the House committee and as I understand their views to be from
talking with some of them individually.
Senator TOBEY. YOU appear here as opposing the agreement ? Or,
what is your position, one of postponement or opposition to the
agreement, or to part of the agreement ?
Mr. SPROUL. It will develop from what I have to say. ' I am in
opposition to part of the agreements, for postponement of part of the
agreements, and for adoption of part of the agreements.
Senator FULBRIGHT. Are you appointed by the Federal Reserve
bank?
Mr. SPROUL. I am appointed by the Board of Directors of the Federal Reserve Bank of New York, subject to approval by the Board
of Governors of the Federal Reserve System.
Senator FULBRIGHT. It is considered a public institution, the New
York bank.
Mr. SPROUL. The New York bank is considered a public institution or at least a quasi-public institution.
Senator MURDOCK. Every share of the stock in the institution is
owned privately, isn't it ?
Mr. SPROUL. Every share of stock in the institution is owned privately, but there does not adhere to the stock the privileges which



BRETTON WOODS AGREEMENTS ACT

303

^ordinarily adhere to stock. It does not mean control. It is nominal
stock ownership which entitles the member bank owners to a dividend
but means little else in the way of control or of participation in the
fhml credit policy of the System.
Senator FULBRIGHT. Where do your earnings go, to the private banks
or the Government ?
Mr. SPROUL. The member banks get 6-percent dividend on paid-in
capital stock. We pay our expenses including the dividend and after
that the earnings go into surplus and reserves. In liquidation they
would go to the Government.
Senator FULBRIGHT. YOU must be liquidated, then, before any part
of it would go to the Government ?
Mr. SPROUL. That is the way the law stands now. At one time there
was a franchise tax.
I shall try in my testimony to speak only of those things of which
I have some knowledge and in w7hich I think I have some competence.
I do not know what matters of high policy have been considered along
with these proposals other than what has been made public and are
involved in this legislation.
My approach to this thing is that there were 3 years of discussion
and negotiation preceding Bretton Woods—preceding the Bretton
Woods agreement; that these discussions and negotiations were chiefly
between the British and Americans; others came in and participated
from time to time, but when the 44 nations came together at Bretton
Woods it wras largely to ratify what had been done. I think it is an
exaggeration of the difficulty of holding another conference and securing agreement of the 44 nations to imply that these agreements were
hammered out at Bretton Woods. I think the instructions to the
United States delegation belie that assumption.
Senator TOBEY. YOU would agree that in any operation of that
magnitude involving so many nations and so many questions, that
there must be some spadework and preliminary drafting done, to have
a skeleton to work on ?
Mr. SPROUL. Oh,
Senator TOBEY.

yes.

In that respect it is no different from what would
be done by any other group, whether it is a bankers' convention or anything else.
Mr. SPROUL. That is right; but my view is that this does not preclude us from having another conference of the nations of the world.
The spadework would still be done and could be built upon.
The proposals are that the fund is to take care of short-term discrepancies between balance of payments income and outgo. The original
conception was that it would take care of temporary imbalances.
More recently, however, it has been discussed also in terms of cyclical
shortages, taking up to, say, 10 years to work out. I don't think that
was the original conception. I don't know, myself, just how you
distinguish at the beginning between cyclical unbalance that may
take 8 or 10 years to work out and a long-term loan. I think you get
into very difficult water; but in any case that is the province of the
fund. The province of the bank is to promote and encourage international investment; to make and guarantee long-term loans.
Now, as to the purposes of these institutions—the general purposes,
of course, are set forth in the preamble, but those are generalities to
which everyone agrees but which can and may mean different things



304

BRETTON WOODS AGREEMENTS ACT

to different people. I think they do. I think that too many people
allow a yearning for international cooperation, which we all have, to
give them assurance in advocating things they don't know much abouty
because they agree with hopeful preambles.
But aside from these general purposes, to which I think we all agree,
although we may have our differing interpretations, what are the most
important practical reasons for considering these proposals. The
immediate or pressing or practical reasons for the fund are that we
are geared to free multilateral trade and that the British and some
others have been leaning toward controlled bilateral trade. It is suggested that this country in the immediate postwar years will create and
maintain conditions necessary for multilateral trade in a free exchange
market, England will undertake, after a transition period of, say,
5 years, during which even exchange controls and bilateral currency
arrangements are permitted, to join in a free multilateral trading
system, if she then thinks the conditions are right. I think that is
the question of interest; in considering this International Monetary
Fund proposal, are we going to get a multilateral free trading world.
The immediate practical reason for the bank proposal relates to the
fact that the balance of payments to the United States has been out
of balance in past years in the sense that we have exported more goods
and services than we imported; we have not lent money abroad steadily
and substantially to balance the accounts, and at times we have tended
to draw in the world's gold. It would be better for us to encourage
and regularize foreign lending so as to reconstruct and develop foreign
countries, to promote the growth of international trade, and, eventually, to balance our accounts by importing goods and services instead
of gold.
As the principal lender, we might say, "Why set up an international
bank to lend our money for us?" I think the joint and several guaranty of the members of the bank is some protection to us, though, and
we need some sort of international financial institution to serve as a
place of consultation, discussion, and development.
The rest of what I have to say is centered on the fund, because the
bank seems to have become almost noncontroversial.
The CHAIRMAN. YOU are for it ?

Mr. SPROUL. Yes. The main question about the fund, assuming
that the idea has merit, is: Can it and will it work, or can we make it
work in the transition period during the first years after the war, and
is it a good bargain for the United States ? I don't think it will work
or can be made to work as intended because I don't think the conditions
will be right. I think some other things will have to be done first,
some other developments will have to take place. I don't think any
international monetary system which involves the disciplines necessary for an international system will work in the immediate period
after the war without exchange control, as is admitted by the fund,
and I don't think the fund and exchange control belong in the game
room.
The fund is essentially a long-term mechanism to iron out temporary
unbalance in international financial accounts. If the idea has validity,
the soundness of its loans would not depend on the purpose for which
they are made but upon their magnitude and upon the general balance-of-payments position of the borrowing countries.
In the transition period the assumption on which it must be based,
that there would be normal swings in the balance of payments, just




BRETTON WOODS AGREEMENTS ACT

305

won't hold good. For many countries, for a considerable number of
years—3, 4, or 5—there is going to have to be a good deal of rehabilitation and belt-tightening before they have any chance of getting back
into a state even approaching equilibrium, and to where they could
participate properly, as I see it, in the International Monetary Fund.
Even in the longer term, of course, unless there is a steady and adequate
flow of long-term investments, which would in part be helped out by
the proposed bank, and unless there is a minimum degree of domestic
stability in the principal industrial or commercial nations, the fund
will not work.
No international monetary system, in my opinion, whether it is the
gold standard or the fund or what have you, will work and survive
in a long period of depression such as we had in the 1930's, when the
most important countries of the world are suffering from a severe
depression.
My approach, then, is that I would be willing to work further on the
idea of the fund to see if it can be developed for longer-term use, but
I consider it a disservice to international cooperation to launch
it in the transition period. I don't think it can work out properly.
Despite the efforts to protect it, I think it is likely to become a catchall for the inadequacies of other transition arrangements. If the
needs of nations are not met by other means, I think there will be an
irresistable tendency to use the international currency reserves provided by the fund, which in any case are the most readily available.
I think that would lead to new distortions and eventual break-down,
a new maldistribution of reserves, and international friction and
recrimination which would seriously affect the cause of international
cooperation.
In addition to the fact I don't think it will work or can be made to
work in the transition period, the proposed fund agreement, as far as
I am concerned, has other draw-backs from the standpoint of the
United States as an international compact. I think it submerges the
idea of two-sided international adjustment of an unbalanced position
and tends to put too great emphasis on the responsibility of the creditor country, which in this case would be the United States, for corrective adjustments, and it also puts too great emphasis on the use of
exchange depreciation by the debtor country. We have article IV of
the fund agreement, which makes devaluation of currency little more
than a question of consulting with the fund before devaluing. There
is the question as to what is fundamental disequilibrium which cannot
be challenged if it develops because of the political and social domestic
policies of the country concerned. That leaves you in a position in
which a country can take domestic action which will bring about what
must be considered a fundamental disequilibrium and then be free to
devalue its currency if that seems to advance its interests.
Coupled with article IV we have article VII, the scarce currency
provisions, which, if it were brought into operation by international
agreement entered into in advance, puts on the United States the
responsibility of having brought about an unbalanced international
position and the responsibility for correcting it. I think in the past
the gold standard has erred on the side of requiring too great adjustment, perhaps, on the part of a debtor country and too little on the
part of a creditor, but I think these proposals go too far in the other
direction and require too great adjustment on the part of the creditor
and too little on the part of the debtor.




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Secondly, I think adoption of the fund may facilitate the avoidance
or postponement of solution of more difficult problems, such as agreement on international trade policy and the problem of the pound
sterling and the British balance of payments, both of which are necessary to exchange stabilization.
Thirdly, I think the fund may require the permanent use of exchange controls to implement the control of capital movements and
tKe repurchase provisions of the fund. I think the Monetary Fund
agreement may institutionalize exchange controls and make them a
permanent part of our machinery of international relations.
Fourth, on the positive side the agreements as they now stand sanction exchange control, multiple currency practices, and clearing agreements for the transition period, say, for 5 years or up to 5 years.
Negatively, I believe, they may be held to sanction internationally
and indefinitely discriminatory trade arrangements and other discrimination, excepting only currency discrimination. If this is a combined monetary convention and commercial convention, or more of a
trade convention than a monetary convention, as some of its proponents have suggested, and the quotas are merely "sugar" or "bait,"
to get other nations of the world to come in, then I think its accomplishments are much too modest and we haven't gotten nearly enough.
I think the fund has mechanical, defects growing out of the fact
it is composed of a miscellany of 44 currencies, not all of which are
usable internationally. There will be a discrepancy between the demand as represented by the 44 quotas and the supply as represented
by the few internationally usable currencies, principally the United
States dollar.
In all these circumstances I am unable to see why we must save the
fund without the dotting of an i or the crossing of a t. We are told
that unless the fund is retained there will have to be another conference and that rejection of any part of the output of the last Conference
would jeopardize international cooperation in all fields and set us
ba*ck on the road toward isolation and other nations on the road to
economic warfare.
In my opinion, we can demonstrate our international good faith
and responsibility in other ways than by ratifying all of the Bretton
Woods agreements. We can demonstrate it by entering into international political arrangements such as are envisaged at San Francisco.
We can demonstrate it, I think, by authorizing participation in the
bank with suggestions for enlarging its powers. We can demonstrate
it by asking for further study of the fund and its operations with
report as to whether and when it should be set up, having in mind the
requirements for its successful operation, such as international trade
and commodity agreements and solution of the British balance-ofpayments problem. If that sort of action would require another conference in order to salvage what is good in Bretton Woods, I think it
could be suggested by Congress, quickly convened, and in my opinion
quickly reach an agreement. The spadework has all been done during
the past 2 or 3 years, and an agreement by a few of the principal countries would find ready acceptance by the rest.
In order to preserve those functions of the fund which have immediate use, the bank plan could be strengthened and broadened. I
would suggest the removal of the two clauses which make membership in the bank dependent upon membership in the fund. I would
suggest a provision for initial determination of exchange rates in




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307

consultation with the bank, and for further consultation before subsequent alterations.
I would suggest a provision for consideration by the bank of removal
of exchange controls, discriminatory currency arrangements, multiple
currency practices, and the avoidance of competitive rate changes.
I would suggest a provision for the collection by the bank of statistical information on trade, monetary reserves, and so forth, and for
communicating the views of the bank to its members.
I would suggest a provision for longer term stabilization loans,
selective and controlled loans, involving no need for the adoption of
loose international monetary principles, the complicated repurchase
provisions of the fund agreement, and the scarce currency clause.
That authority for stabilization loans by the bank, I think, is something that will be needed in the transition period; it either left out by
oversight or else it wTas left hanging on three obscure words in the
bank proposals, "in special circumstances." This left a question in
the minds of many of us as to whether what seemed to be the only
kind of stabilization loan which really will be needed and be of practical use in the transition period, was going to be provided by either
the fund or the bank. General purpose stabilization loans to help
restore a whole economy are what will be needed in the early stages.
Finally, I think consideration should be given to a modest increase
in the capital of the bank, in view of the assumption of the stabilization loan function which I suggest.
If these things are done and the Bank proposal adopted, this country
should then attack the British problem as an absolutely essential
prerequisite to currency stabilization. Unless we clear the decks with
the British, I think any stabilization we have will be a mirage, whether
we have the bank or the fund or both.
That, in my opinion, includes finally wiping out the debts of the
last war, a liberal definitive settlement of lend-lease obligations, agreement and perhaps help on a program of liquidating the blocked sterling
balances, and agreement and help on meeting the deficit in the balance
of payments in the immediate postwar years.
If we don't do these things, I think Britain is going to embrace or
be forced into bilateral trading arrangements and clearing agreements. I don't think the Monetary Fund comes anywhere near meeting that problem. And we have to remember, I think, that the fund
does not include renunciation of commercial measures of economic
warfare, only currency measures. I think the fund agreement is really
powerless if countries are at liberty to bypass it by arrangements
affecting not the payments but the actual movement of goods.
Senator TOBEY. YOU are familiar with the fact that at San Francisco an economic council has been set up and these matters come
within the purview of that council ?
Mr. SPROUL. Yes.
Senator TOBEY. That is a healthy sign, isn't
Mr. SPROUL. Yes; I think it is. But my point

it?
is that in the Bretton
Woods proposal arrangements affecting payments; but the actual
movements of goods are not covered, and therefore, we are not really
dealing with the reality. That goes for Russia as well as for Great
Britain or any other country. In Great Britain Mr. Churchill has
recently stated in a manifesto of the Conservative Party that Great
Britain will not give up its rights to safeguard its balance of payments



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BRETTON WOODS AGREEMENTS ACT

by whatever means are necessary, and I think that represents British
opinion.
Therefore, I say: Why do we not revert to article VII of the
lend-lease agreement with Great Britain and discuss these problems in the terms and spirit of that agreement and see if we cannot
work out a more thorough settlement of the British problem—which
I think is a prerequisite to any sensible approach to international currency stabilization. I think we are tossing in some of our chips before the game begins, and at the same time we are jeopardizing our
chances of doing a successful cooperative job.
The CHAIRMAN. Are there any questions ?
Senator TOBEY. Yes. Mr. Sproul, you have stated very frankly
you are here representing Mr. Sproul alone. Of course, I know you
are a doctor or a specialist. You come forth in the democratic process
and give your testimony as you have done. We all know that doctors
disagreee and certainly bankers disagree. I assume you know Mr.
Ralph E. Flanders, president of the Federal Reserve Bank of Boston;
Mr. Alfred H. Williams, president of the Federal Reserve Bank of
Philadelphia; Mr. Ray M. Bidney, president of the Federal Reserve
Bank of Cleveland; Mr. Hugh Leach, president of the Federal Reserve Bank of Richmond; Mr. W. S. McLarin, president of the Federal
Reserve Bank of Atlanta; Mr. C. S. Young, president of the Federal
Reserve Bank of Chicago; Mr. Chester Davis, president of the Federal
Reserve Bank of St. Louis; Mr. Peyton, president of the Federal Reserve Bank of Minneapolis; Mr. H. G. Leedy, president of the Federal
Reserve Bank of Kansas City; Mr. R. R. Gilbert, president of the
Federal Reserve Bank of Dallas? You know them all, do you not?
Mr. SPROUL. Yes; I do.
Senator TOBEY. They are

all in favor of the Bretton Woods agreement ; you know that ?
Mr. SPROUL. I only know that in the sense that Mr. Flanders, Mr.
Williams, and Mr. Davis are in favor of the agreement. As to the
others, they may or may not be.
Senator TOBEY. I can give you their testimony; they all favor the
adoption of the fund.
Senator TAFT. Without amendment ?
Senator TOBEY. AS it passed the House. You appear before us not
only as against the fund but you also favor or ask for a postponement
of it; is that correct? Is that the tenor of your remarks?
Mr. SPROUL. Yes.
Senator TOBEY. YOU

are acquainted with Prof. Oliver Sprague and

Iris viewpoint ?
Mr. SPROUL. Yes.
Senator TOBEY. DO

you look upon him as an eminent authority on

currency matters?
Mr. SPROUL. Yes.
Senator TOBEY. Ma^

I read a statement that Mr. Sprague made the
other day in contradistinction to your view, with all due respect to you:
Now, if we are going to have disordered exchange and bilateral clearing arrangements, I think there are very few so-called productive foreign loans which
are in any certain sense really secure.
That is my reason for regarding it as essential that we have some hope, through
some such device as the fund, that we may have a reasonably orderly development in the monetary arrangements between countries with a minimum of restrictions upon transfers and a minimum of bilateral and other special arrangements between countries.



BRETTON WOODS AGREEMENTS ACT

*

309

If you do not have the fund, if you were to establish the bank only, then I
should imagine that most countries would take the view that the only course
proper for them was to develop one and another of the various kinds of bilateral
commercial special arrangements which were devised in large part by my old
friend, Schacht of the Reichsbank. That kind of thing was developed in a very
extensive way in the thirties and the conditions are not unfavorable to the persistence of dealings of that kind by countries that find it, for one reason or
another, exceedingly difficult to pay for even essential imports.
* * * Without the fund, my forecast would be the development of so many
bilateral restrictive arrangements that the utility of the bank would be very
much diminished.

You don't concur in that ?
Mr. SPROUL. I don't concur in that; no. I think that during the
transition period it is admitted by the fund we are going to have orderly currency arrangements brought about not by the fund but by
exchange control. We are going to have bilateral and clearing agreements. They are in its terms permitted by the fund. We are not
going to be able to avoid these various arrangements which Mr.
Sprague speaks of during the transition period. The Schachtian
devices are abuses of that sort of arrangement which need not of themselves be wholly destructive. I think they can be and may be. I think
it is an improvement upon them to have multilateral trading, but they
need not be of themselves wholly and continuously destructive if they
are not abused as Germany abused them.
Senator TAFT. May I ask one question there ?
Senator TOBEY. Yes.
Senator TAFT. In other words, while you agree with Mr. Sprague
that these things ought to be removed, you think the fund won't
remove them*.
Mr. SPROUL. It will not remove them, and it admits it will not remove
them for the transition period.
Senator TOBEY. NOW, as to the matter of postponement, again
referring to Mr. Sprague, who has been adviser to the Federal Reserve Board, the Bank of England, and the United States Treasury, and in contradistinction to your contention that* the fund should
be postponed, I read as follows Mr. Sprague's viewpoint on that:
I do not accept that (the suggestion that the fund be delayed 3 to 5 years)
because in the meantime I should fear a good many undesirable developments
would take place which may not take place if we establish the fund. * * *
I see no likelihood * * * that an orderly exchange relationship would be
developed by simply waiting.
* * * It seems to me you are asking to create a situation which is so
nice and comfortable, and you need such good equilibrium that the fund would
be pretty nearly surplusage, and I should think the bank might be also * * *.
Policies will be determined in this period while we are making some further
investigations, and I think these policies will be of a kind which will make it
perhaps impossible for the fund to function well or for the bank to issue very
many securities that are consistent with safety.
You cannot wait while the house is burning down. You have to use what
instrumentalities you can in the hope that they will serve.
Just try to imagine yourself in the situation of the more distressed countries
if this is more or less indefinitely postponed. It seems to me very clear that
that postponement would have an influence in the determination of policies away
from well-ordered relationships, all around the world.

So, I say we have eminent authorities like Sprague and we have
the presidents of the Federal Eeserve banks. We have their testimony before us. We sit here as a jury and weigh the evidence and
in a sense decide the case on the preponderance of the evidence.
Now, the preponderance of the evidence is all in favor of the adoption by the Senate of the bank and the fund as it passed the House,



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based on the expert testimony of members of the Federal Reserve
banks and on other expert testimony. Is that a fair statement?
Mr. SPROUL. I think it is an exaggerated statement.
Senator TOBEY. On what lack of evidence is it based ?
Mr. SPROUL. Well, with all due respect to my colleagues in the
Federal Reserve System, the Federal Reserve banks of the other
districts are not so closely concerned with the international operations
of the Federal Reserve System as the Federal Reserve Bank of New
York, and I think they would be the first to admit, many of them, that
they are not experts in matters of the sort w7e are discussing here.
With respect to Mr. Sprague's quotation which you read last, I
think that the kind of international arrangements, which he fears, can
develop under the fund as well as without the fund. But if they develop under the fund, they develop with international sanction and
approval and when we come to the end of the transition period
arid some country, Great Britain, perhaps, says, "We are sorry, but
our situation won't permit us to enter into a free multilateral trade
arrangement;" we will have to go on with these agreements, which
have sanctioned it in advance, the things he sees happening outside
of the fund." I say currency stabilization during the transition period
is going to be maintained by exchange controls in any case, not by the
fund.
Senator TOBEY. AS to the relative importance of the presidents of
the other banks in contradistinction to the largest bank in the world,
which is your bank, the fact remains these men would not hold these
positions if they were run-of-mill financiers. They are experts in their
line, and they spoke and gave their testimony as such. You are approaching this'thing as a banker, as you should, backed by all the
conservatism and good judgment that you have acquired by years of
experience. We are not approaching it from that standpoint primarily. We are approaching this thing because we see the world
prostrate. We see that the alternative to doing something is doing
nothing, and doing nothing is chaos, in our judgment. So we have the
option of putting 2 or 3 billions into this fund or doing nothing and
having chaos. According to the press, we spent $8,000,000,000 in the
first 22 days of the Okinawa campaign. We put that yardstick over
against the fund and we see the whole amount of the fund is less in
dollars alone than the cost of the war for 22 days. If we can afford to
spend $8,000,000,000 every 30 days to kill men and maim them for life
and to destroy so much of the world, in God's name can't we afford to
take a chance on trying to bring peace to the world ?
Mr. SPROUL. I appear not as a banker but as a central banker. There
is quite a distinction. I have no years of conservatism behind me.
I have years of trying to improve and develop and liberalize the functioning of the domestic and international banking machinery. I think
the question of what we are expending every day on the war as compared to the cost of this agreement has nothing to do with the case,
really, Senator. I am not particularly concerned, myself, about the
cost of these arrangements. Under the gold standard we committed ourselves to give way or to sell our goods and services in return for gold for which we did not have any particular use, in unlimited amounts. I am not particulary concerned about the cost of
these proposals if we are going to get our money's worth or anywhere
near it in improved international relations.



BRETTON WOODS AGREEMENTS ACT

311

Senator TOBEY. That is what concerns us.
Mr. SPROUL. That is what concerns you and that is what concerns
me.
Senator MURDOCH. What did you mean, Mr. Sproul, earlier in your
testimony when you mentioned what I thought was a very significant
factor in leading you to arrive at your conclusion—that becoming a
part of Bretton Woods' was not a good bargain for the United States ?
Would you briefly tell us what you mean by a good bargain ?
Mr. SPROUL. I tried to develop that. I think a good bargain for
the United States would be one which carried in itself the seeds of a
likely solution of the difficulty of creating a world of multilateral
trade, on the desirability of which we are agreed, and some of the rest
of the world is not; at least some countries lean toward bilateral trade.
I think we should not allow ourselves to have a rose pinned on us for
all the adjustments which are to be made, in case of international imbalance, as the principal creditor country. I think we ought to receive,
for all the contributions we make to the fund and the bank, returns
from the other countries in the way of concessions with respect to their
currency policies and their trade policies which will give us hope of
leading to this world of multilateral trade we are all trying to reach.
Senator MURDOCH.- YOU do think that ultimately this international
arrangement is a goal to which we should work ?
Mr. SPROUL. I do. I think the goal of multilateral trade internationally is the goal which from the standpoint of this country and I
think from the standpoint of the whole world is the goal toward which
we should work. I think the bank can contribute materially in leading us toward that goal, but I don't think the fund can, at least during
the transition period.
Senator MURDOCH. YOU want to postpone, as I understand it, and
make no international economic arrangement at this time?
Mr. SPROUL. NO. I want to make international economic arrangements. I want to set up the bank now with expanded power. I want
more definite arrangements between ourselves and the British, as the
two greatest international trading nations, so that international
arrangements, particularly international currency arrangements, will
later have a fair chance of working.
Senator MURDOCH. SO you do, if I understand you, take the position that economic stability, international economic stability, should
go hand in hand with political stability ?
Mr. SPROUL. Yes; I do. I think that international currency stability requires international economic stability; that if the underlying
economic situation is not present, your currency stability won't mean
anything.
Senator MURDOCH. Don't you think stability of international currency would be very conducive to international political stability ?
Mr. SPROUL. I think we are going to have international currency
stability, in terms of exchange rates, maintained by exchange controls
for a number of years, as is contemplated in the fund. That is where
you will get your immediate currency stability, in terms of exchange
rates. The kind of stabilization loans which will be needed before
these exchange controls can be relaxed and the international stabilization loans of general character and somewhat longer term, which I
suggest be made by the bank, and at a later stage when exchange controls may be removed will there be proper use and need for the shortterm loans which the fund is expected to provide.




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BRETTON WOODS AGREEMENTS ACT

Senator FULBRIGHT. I don't quite understand the great distinction
between the bank and the fund because several witnesses have said
while these advances from the fund are really just loans like any other
loans—we had a great argument whether they should be called a loan
or not—in a real sense it seems to me they are a loan for a special purpose with some distinction in the length of time. If that is true, I
don't see why you think that even though it will not solve all the problems it might not make some contribution to the problem. What is
the essential evil in the fund, if it is just another type of lending institution ?
Mr. SPROUL. Because the type of loan which it is set up to provide,
as I understand it, is not the type of loan which will be needed or can
be properly or effectively used in the transition period.
Senator FULBRIGHT. Well, you want that function to be given to the
bank. Is there any idea in your mind that the bank will be run more
efficiently than the fund ?
Mr. SPROUL. I think the kind of loans I am talking about which are
long-term stabilization loans to help a country to restore its whole economy can be better made by the bank where each loan is considered on
its merits and in terms of the whole situation of the country rather
than by a currency exchange arrangement such as the fund is supposed
to be. Freedom of access to a currency pool does not, I think, accord
with the situation we have to meet, on the one hand, and, on the other
hand, there may be limitations on the amount of that freedom of access
from year to year which I have in mind would make it impossible for
the fund to meet that kind of situation.
Senator FULBRIGHT. YOU think that loans by the bank could be
made and as one of the conditions they would demand in order to get
a loan, they would give up competitive depreciation, for example. Do
you think that could be done by a loan under the bank just as well as
under this arrangement ?
Mr. SPROUL. I think the bank could have in its charter the requirement of renunciation of discriminatory practices just as early as it is
possible to ask for this under the fund. They do not have to renounce
immediately under the fund.
Senator FULBRIGHT. NO ; not for the first 5 years and possibly under
certain conditions for a longer term, but it still seems to me that in
general you think this function could be performed but you would
prefer that it would be by one organization. Is that an essential and
important difference, whether they have two organizations to perform
two functions or one to perform two functions ?
Mr. SPROUL. I think there would be some advantage in having one
organization in this area. But I think there are two different functions to be performed here, and if one of them is to be performed by
the fund, it is not the kind of function we need in the immediate
transition period and it involves us in making concessions to the abnormal transition needs of other countries and in sanctioning international
trade agreements which in the purview of our general experience and
our requirements I think are undesirable.
Senator FULBRIGHT. Well, a concession is always undesirable but
if we get anything of value in return, of course that is a bargain. You
don't think we would get anything of value in return ?
Mr. SPROUL. I don't think we would get nearly enough.



BRETTON WOODS AGREEMENTS ACT

313

Senator FULBRIGHT. YOU said I think among other things we could
rely on San Francisco and some of those things. You really don't be-'.
lieve San Francisco would be effective if that is the only thing we had
in international relations?
Mr. SPROUL. NO. I say at this stage, to demonstrate our desire to
cooperate and our responsibility in the international field we do not
have to do everything at once. We do not have to adopt everything
that is put up to us just as it is put up to us.
Senator FULBRIGHT. DO you feel this thing would have any effect
upon the determination of the policies of some of these countries, as
to* whether or not they can afford to pursue private trading or whether
they must accept the system that is followed by Russia ?
Mr. SPROUL. I don't think so myself. I don't think that what is considered here or what is included in these arrangements will be the
determining factor as to whether they must follow one system or
another.
Senator FULBRIGHT. I would say part of your idea is that the world
is in such bad shape that this would be ineffective. If it is in that bad
shape and we do nothing, it seems to me that is a great temptation,.
perhaps a necessity, for them to accept the communistic system.
Mr. SPROUL. Of course, I don't suggest we do nothing. I think
I suggest that we do the thing which will be effective and useful in,
the transition period. One is the proposed international bank and
two is some sort of an arrangement in settlement or a concordat with
Great Britain.
Senator FULBRIGHT. This won't exclude a concordat with Great
Britain. I would assume that even though the fund and the bank is
accepted there still would be further special loans or some sort of a
definite arrangement with Great Britain because of the very reasons
you suggest. I don't think this excludes that.
Mr. SPROUL. It does not in its terms but I should be fearful myself,
with the impression that has been generated that this fund and bank
will take care of the financial difficulties of the postwar world, that
the opposition to additional aid to Great Britain which is always ready
to express itself, would be much more forcible than if we did not
adhere to an ineffective fund that was supposed to do the job.
Senator FULBRIGHT. Well, I don't know if anybody feels that this
is all that should be done; I haven't seen much evidence of that.
This is just one of the several things.
Mr. SPROUL. Well, the impression I have gotten is that the public
is thinking of this or is receiving publicity to lead it to think in terms
of this as the settlement of the international financial problem.
Senator MURDOCK. YOU do know, however, that England is entering into arrangements with countries, say, Sweden and other countries, at this very time ?
Mr. SPROUL. They have entered into bilateral arrangements with
other countries.
Senator MURDOCK. Doesn't that rather discount the statement you
have made that the fund is supposed to do the job ?
Mr. SPROUL. I think it illustrates their feeling that the fund won't
do the job or that it may not do the job for them. If the fund is
not adopted they will have some other arrangements, but in any case,
I think they are going to depend during the transition period largely
on bilateral arrangements to protect their position.



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Senator MURDOCK. In their bilateral agreements with Sweden and
I assume with other countries they do refer to the International Fund
and agree to make any amendments necessary to make the bilateral
arrangement or agreement conform to the international arrangement.
Mr. SPROUL. That is very easy, because for the transition period
the international arrangement does not prohibit the kind of bilateral
agreements they are entering into.
Senator MURDOCK. Then don't we come right back to the point that
Senator Fulbright has developed, that the mere entrance into the fund
does not deprive them of these bilateral agreements or other arrangements that any countries may want to enter into, so far as they are
not in violation of the international arrangement ?
Mr. SPROUL. I think that is so but we are hoping eventually to get
away from bilateral arrangements and agreements and the fact they
are not prohibited by the fund I don't think contributes to that.
Senator MURDOCK. NO; I think that the fund very wisely did not
prohibit them.
Mr. SPROUL. I don't think it could have in the immediate postwar
period.
Senator MURDOCK. I doubt that too but certainly if they are not
prohibited and we can have the international arrangement along with
whatever bilateral arrangements are necessary then it is difficult for
me to see why we should postpone the international arrangement. I
cannot see why it is going to be difficult or why it is going to be harmful to the normal relations that would go on if we did not have the
fund, as long as it does not preclude them.
Mr. SPROUL. I tried to point out when I discussed it earlier what I
thought some of those difficulties were.
Senator MURDOCK. Well, I admit my question is rather argumentative.
Senator FULBRIGHT. I have this feeling and I think it is fairly common: That the movements you have suggested are the traditional
movements that were utilized in the past 20 or 25 years. There is a
general feeling not only in the financial but in the political field that
we have tried that system and look at the trouble we are in. Now
you are suggesting the traditional tried way. It is tried. I don't
attribute this trouble all to this, but there is a feeling that we must
do something a little different from what we have done before. Now
none of us, or at least I am not qualified to say this is the only way,
but at least it is a venture along a new approach to this problem.
There is a tendency to say we must take a chance. We know what has
happened under the old system of trading, both in economics and
diplomacy. We have to do something different or we can anticipate
a repetition of the same experiences. Don't you have some feeling
of that sort ?
Mr. SPROUL. I have. That is why I suggest that we ought to adhere
to the bank with the expanded powers I suggested to provide an international meeting place, an international forum, a place for international consultation on matters which are not wholly domestic matters
but which have international aspects and which would be able to
give the kind of assistance to foreign countries to reestablish themselves which I think will be needed in the immediate postwar period.
Senator FULBRIGHT. There isn't anything about the bank, as I can



BRETTON WOODS AGREEMENTS ACT

'

315

see it—it is just the traditional system there, which they will follow
in much the same way it has always been done. It is simply a guaranty, as I understand it, the same as if you were a private banker, you
investigate a loan and you agree to make it. The principal function
of the bank is to say we will guarantee the loan.
Mr. SPROUL. Well, the novelty of that is that it is an international
system, a place where all the countries of the world would come together
and discuss these problems of international currency and lending and
borrowing, and treat them as international problems as well as domestic
problems. That is what we haven't had before.
Senator FULBRIGHT. Would you say if this fund had a reasonable
chance of eliminating the practice of competitive depreciation, that
that alone would be worth anything, if it did that and nothing else %
Mr. SPROUL. Yes; I think that would be worth something.
Senator FULBRIGHT. YOU don't know how much—you don't know
whether it is worth this much ?
Mr. SPROUL. NO. I think the value of competitive depreciation depends on the particular circumstances and the particular countries..
I think used widely as a weapon of international economic warfare, of
course, it is undesirable and destructive, and in the end ineffective.
Senator MURDOCK. Mr. Chairman, may I ask this question: The
success of the bank would depend, would it not, Mr. Sproul, largely
on the good faith of the nations participating in the banking arrangements ?
Mr. SPROUL. That would be a good part of the success of the bank,
particularly if it had these added powers which I have suggested, relating to consultation and discussion and information, but its success
as a lending institution would depend also on the capacity of its management and the care with which the loans were made.
Senator MURDOCK. But the good faith of the participating nations
is certainly an important factor, is it not ?
Mr. SPROUL. It is an important factor in any of these international
arrangements.
Senator MURDOCK. I would assume so, although I am not a banker.
If that is true, then isn't the statement made by Churchill, which I
thought you considered very significant, just as applicable to the bank
as it would be to the fund ?
Mr. SPROUL. The bank does not now try to set up these international
monetary principles which the fund tries to set up.
Senator MURDOCK. I know that.
Mr. SPROUL. But even there Mr. Churchill is only saying Great!
Britain will do what it is now permitted to do by the fund. I say to
adopt a set of international monetary principles in the present state of
the world means that you have to accept what I would consider the
least common denominator in international monetary principles and
I think that is an undesirable thing to do.
Senator MURDOCK. But if it wasn't for the present state of the world,
if everything was fine and no disequilibrium existed, there would be
no need at all for any international arrangement, would there ? Isn't
that the very reason we investigated the thing and the majority of the
people are willing and anxious to go into it, I think, is because of the
very state of the world at the present time.
Mr. SPROUL. Well, we never have a state of perfect equilibrium in
the world. We will always have the need for some sort of temporary
75673—45



21

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BRETTON WOODS AGREEMENTS ACT

lending and borrowing to avoid the necessity for more drastic action
as a result of temporary unbalance. We never have a state—it is
unlikely we would ever have a state of perfect equilibrium.
Senator MURDOCK. Well, we have never had a state of disequilibrium
like we are faced with today.
Mr. SPROUL. But when we have a state of disequilibrium such as we
are faced with today, an institution which is designed merely to offset
temporarily relatively small imbalances is not the kind of an institution which can meet the situation, and in trying to give the impression
that it is going to meet it, I think we give away too much to get something which won't do the job.
Senator MURDOCH:. Of course, that is merely your opinion that it
won't do the job.
Mr. SPROUL. That is right.
Senator MURDOCK. It has never been tried.
Senator FULBRIGHT. We run exactly that same risk with San Francisco. There are many people who will think when we sign that
charter, everything is done; but of course it is not done, as you know.
It is just merely a beginning. But if your reasoning were applied to
San Francisco you would say because of the possible disappointment
which I am sure will be generally in existence in this country, we had
better not sign it at all, it is going to mislead people. You could
argue that way. It certainly is not going to solve all the problems of
the peace just because we sign that charter. Yet we feel the necessity
for signing it and making it work to the best of our ability and our
wisdom. If we are really wise you would grant it might have some
success. Don't you think the same reasoning would apply to Bretton
Woods?
Mr. SPROUL. I think it would be very difficult for the fund to have
any success in doing what it is supposed to do in the transition period.
Of course, I am not suggesting an abandonment of the whole idea. I
think, in terms of your comparison with San Francisco, the acceptance
of the bank with enlarged powers is the measure of acceptance of what
has been proposed. I think also there is some difference, though it
may be slight, between international political arrangements and international financial arrangements, I think you can afford to go a little
closer to the heart of the matter in the way you work out financial
arrangements and in the order of precedence than you can in the political arrangements. •
Senator TOBEY. Referring to the quotation from Mr. Churchill, is
your interpretation there that Mr. Churchill through that statement
implied that if Britain adopted the agreements when they are submitted to her Parliament, that Britain at her own sweet will, at any
time she felt it was to her best interests, would flaunt those provisions
and cast them aside and go her own way independently of the other
countries ?
Mr. SPROUL. I don't think she would flaunt the provisions but I
think under the provisions as they now stand it is within her discretion
and if she cannot accommodate herself to a multilateral free trading
world she can, and it is admitted by the fund, take these other measures, during the transition period, and non-currency measures for all
time, as far as the fund specifically says anything about it.
Senator TOBEY. Granted that Britain did come across with the other
nations and the whole thing was ratified and went into effect, isn't it



BRETTON WOODS AGREEMENTS ACT

317

your judgment that Britain would measure up to and follow the
principles of the agreement ?
Mr. SPROUL. I think she would try to but I think you can set up
standards which a country may find it impossible to live up to and
then it must embrace other defenses.
Senator TOBEY. When that time would come, under the consultation features of the agreement, she would talk things over and see
what could be done. That is one of the valuable provisions, the
consultative feature.
Mr. SPROUL. I think that is a valuable provision.
Senator TOBEY. That is worth retaining whatever we do, isn't it?
Mr. SPROUL. I think it is.
Senator TAFT. Mr. Sproul, as you point out, the fund itself is to
blame if the British interpretation is something that is authorized
by the fund. No doubt you are familiar with Lord Keynes5 statement on this matter of the International Monetary Fund before the
House of Lords on May 23,1944. In it he said:
First, it is clearly recognized and agreed that, during the postwar transitional
period of uncertain duration, we are entitled to retain any of those wartime restrictions and special arrangements with the sterling area and others which are
helpful to us, without being open to the charge of acting contrary to any general
arrangements into which we have entered.

I think that is still their position.
Mr. SPROUL. I think that is still their position.
Senator TAFT. And that is in effect what Mr. Churchill was saying.
Mr. SPROUL. I think he was saying the same thing in different words,
and it is no violation of what they have agreed to to say it.
The CHAIRMAN. Well, thank you. I suppose, as a summary, you are
for the bank now ? You are for the bank ?
Mr. SPROUL. Yes.
The CHAIRMAN. And

on the question of the fund you are really not
against it, but you desire a postponement of it; isn't that your
attitude ?
Mr. SPROUL. I would like to have the idea of the fund further
studied and developed so that it could be organized and put into
operation when the time comes when such a fund would have a reasonable chance of success.
The CHAIRMAN. YOU did not say that you were absolutely against
the fund, as some others have said?
Mr. SPROUL. I am against it at the present time. I don't know
whether I would be against it 2 or 3 years from now.
The CHAIRMAN. Exactly. Thank you very much, Mr. Sproul.
Mr. SPROUL. YOU are welcome.
Senator MILLIKIN. I would like to ask Mr. Sproul a question.
The CHAIRMAN. Certainly.
Senator MILLIKIN. It has been suggested that through the operation of this fund communism might be confined. Have you heard any
suggestions that, if this fund became effective, Russia would withdraw
her communistic activities in Finland, Lithuania, Latvia, Estonia,
Poland, Eastern Germany, Czechoslovakia, Bulgaria, Rumania,
Yugoslavia ?
Mr. SPROUL. NO ; I have not, I haven't heard the fund discussed in
connection with communism at all.
Senator MILLIKIN. I did not raise the question.



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BRETTON WOODS AGREEMENTS ACT

STATEMENT OF JOHN H. WILLIAMS, VICE PRESIDENT, FEDERAL
RESERVE BANK, NEW YORK, N. Y.
The CHAIRMAN. Mr. Williams, you are a member of the Federal
Reserve, one of the directors of the Federal Reserve bank, aren't you ?
Mr. WILLIAMS. NO; I am a vice president of the Federal Reserve
Bank of New York.
The CHAIRMAN. Oh, a vice president of that ?
Mr. WILLIAMS. Yes. Also a professor of economics at Harvard/ I
don't know in what capacity I am here. I would like to repeat what
Mr. Sproul said. I am speaking only for myself as an individual.
The CHAIRMAN. Senator Taft suggested that you be invited to come
here.
Senator TAFT. Yes; I asked that Mr. Williams be called, and I would
like him, if he would, to state his experience in matters of this kind,
in his present position that he occupies.
Mr. WILLIAMS. I have been interested in this subject ever since I was
a graduate student at Harvard. I specialized in international monetary economics, wrote my doctor's thesis in that field. I went to Argentina to study their problem of the eighties and, nineties to get
some light on the workings^ of international monetary forces, and I
have been interested—I have been a specialist in that subject matter
ever since.
Senator TOBEY. Mr. Williams, I am interested in this. You spoke
of the thesis you wrote, and we have all had that experience one
time or another. This is entirely aside from the subject, but if you
took that thesis you wrote then, on which you received your degree,
and put it alongside of modern conditions and economics, would it
about be apropos and apply? Would you change very much in it or
.would you make considerable changes in it?
Mr. WILLIAMS. Well, I haven't looked at it for some time.
[Laughter.]
Senator TOBEY. IS that your answer?
Mr. WILLIAMS. NO; I think much of it would be applicable. In
other words, I think the historical study of these problems is essential. We need perspective on the problem. Problems are not so
new as we are apt to think they are.
I think I might mention that I was one of the two American delegates on the agenda committee of the world conference of 1933, and
I made two trips to Geneva in 1932-33, that winter, to draw up the
agenda. I do not think perhaps it is necessary to say that I have
always been for international cooperation.
Senator TAFT. YOU are now a professor at Harvard ?
Mr. WILLIAMS. I am still a professor and also a dean at Harvard.
Senator TAFT. And also connected with the New York Federal
Reserve Bank?
Mr. WILLIAMS. Also connected, in charge of this research department, as vice president.
Senator TAFT. Mr. Williams, is it fair to ask if you were invited to
be a delegate at Bretton Woods ?
Mr. WILLIAMS. I wasn't invite to be a delegate. I wasn't directly
invited to attend in any capacity, but I was informed indirectly that




BRETTON WOODS AGREEMENTS ACT

319

they would be glad to have me attend if I would stay within the
President's instructions to the delegates.
Senator TAFT. And that was, to conform, to support the basis of the
experts' report?
Mr. WILLIAMS. TO support the experts' report. And I declined to
do so, because I had fault to find with the experts' report and wanted
to continue to be free to think about the problem.
Senator TAFT. I see. Do you wish to make a statement, Mr. Williams, or do you want to be questioned ?
Mr. WILLIAMS. I might submit for the record the last little paper I
wrote on this subject, the paper which I delivered in April at the
meeting of the Academy of Political Science. I have been writing
about this matter really from thp beginning. I began with the
publication of the Keynes and White plans in April of 1943 and continued to follow the whole discussion here and abroad and the developments of the negotiations, and at each significant stage I have
written a new paper. This is the last one. It is shorter than the
others, and I think it brings perhaps into better focus what I really
think about the problem.
Senator TAFT. HOW long is it, Mr. Williams ?
Mr. WILLIAMS. It is not very long.
The CHAIRMAN. Would you like to put it into the record ?
Senator TAFT. Yes. Mr. Chairman, I ask that it be made a part of
the record.
The CHAIRMAN. Yes.
Senator TAFT. It is only

about 10 pages, small pages.
(The paper submitted by Mr. Williams is as follows:)
THE

BRETTON WOODS AGREEMENTS

By JOHN H. WILLIAMS, dean, Graduate School of Public Administration, Harvard
University
(An address before the Academy of Political Science at the semiannual meeting
on "world organization—economic, political, and social", April 4-5, 1945)
In my Foreign Affairs paper last fall,1 I suggested adoption of the bank, with
modifications designed to permit it to perform some of the purposes of the
Monetary Fund during the transition period from war to peace, and postponement for the present of a decision on the fund. As the debate has developed in
recent months, this has appeared to be the central issue. There has been general
endorsement of the bank but a widespread difference of views about the fund.
When the debate about the fund began with the publication of the original
Keynes and White plans in April 1943, I thought that the rriain question was
whether we should approach the problem in terms of a general international
monetary organization, as those plans proposed, or should begin with the major
countries whose currencies are the chief means of international payment and
whose policies and circumstances will have a predominant effect upon the character of postwar international trade and currency relations. After Bretton
Woods, I believed that a solution should be sought so far as possible within the
framework of that agreement, but, as I have listened in recent months to the
discussion here and abroad and watched developments, I have become convinced,
even more than before, that the question whether and when we should adopt the
fund should depend primarily upon what is done, outside the fund, toward solving
England's special problems.
1

''International Monetary Plans : After Bretton Woods," Foreign Affairs, October 1944.

This and a number of earlier papers are included in my book, Postwar Monetary Plans
and Other Essays (New York, 2d ed., 1945).



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BRETTON WOODS AGREEMENTS ACT
II

Before proceeding further with this question, I shall review briefly some of the
more general issues around which the debate on the fund has revolved.
The fund is intended primarily as an agency of long-run monetary management. It is intended to give all member countries access to a common fund of
currencies in order to meet the short-term fluctuations in their international
position. The basic assumption for the successful operation of such a fund is
that there should be a tendency for international transactions to equalize, apart
from short-term fluctuations, so that the fund would not become lopsided, with
some nations in the position of chronic debtors and others of chronic creditors
in the fund. Whether such an even-balance position could be maintained would
depend partly upon the circumstances under which the fund had to operate and
partly upon the principles and policies of adjustment pursued by the fund.
One of the early questions raised about the fund by myself and others was
whether in the abnormal conditions of the period of transition from war to
peace the expectation of an even-balance position could be realized. It was in
response to this criticism that the provision was introduced into the fund agreement prohibiting the use of the fund for expenditures for relief, reconstruction,
and the liquidation of war balances. Actual avoidance in practice, however, of
such use would be more difficult than its formal prohibition, which still leaves
the question whether the fund would not in fact be a catch-all for inadequacies
in the transitional arrangements. Nations would not know in advance just
what they were using the fund for. They would only know their over-all situation and would come to the fund to cover any deficits that might arise. I still
feel strongly that to put the fund into effect during the transition period would
involve the risk of wrecking it because of the unusual character of the conditions
that it would have to confront.
A growing awareness of this danger, coupled, I think, with an awareness of
the inadequacies of the fund provisions regarding the methods of international
adjustment whereby the fund is to be maintained on an even keel, even under
more normal conditions, seems to me to be responsible for a number of the
suggestions that have been made about protecting the fund. Treasury officials
have said in their testimony that care would need to be exercised in putting the
fund into operation, that member countries would have to convince the governing body of the fund that they were in proper condition to begin using it, and
that it would probably take a year or two after adoption to bring the fund into
operation.
Much of the discussion of the fund has centered on the question whether members would have an automatic right to use it. The advocates of the fund have
stressed the fact that it provides for a graduated rate of interest and that the
right to use it would normally be limited to 25 percent a year of a nation's
quota. Bankers and other critics of the fund have questioned whether these and
other safeguards now in the fund agreement are sufficient. A fear of misuse
of the fund has been a principal reason for suggesting that the bank should be
spe.iflcally empowered to make longer term stabilization loans.
I have never sympathized with the idea that the way to protect the fund is to
make it operate like a bank. Critics of this general line of suggestion seem
to me quite right in maintaining that this type of restriction on the use of the
fund will only undermine its usefulness. If the fund is to operate as a common
pool of foreign exchange resources, equivalent to gold, there must be the same
freedom of access and of use as petains to gold itself. To guarcl against possible
misuses of the fund by measures which undermine its essential logic seems to
me a wrong approach. My own suggestion of a postponement of adoption of the
fund rests, in part, on the ground that the conditions of the transition period
will not be suitable for it. To succeed at all, the fund would need a trial under
favorable circumstances. It seems to me better to wait until those circumstances have been achieved rather than to circumscribe the fund with restrictions
that deny its character.
A second major criticism which I have made relates to the technical or mechanical character of the fund. As now designed, the fund would be composed
of a miscellany of 44 national currencies, most of which are not used as international means of payment. Under the conditions of the immediate postwar
period, and perhaps for a long period to come, it cannot even be assumed that
the pound will be an internationally usable currency except within the sterling




BRETTON WOODS AGREEMENTS ACT

321

area and under the special bilateral currency agreements which England is
now in process of arranging, particularly with the countries of western Europe.
Thus, as a practical matter, we may be confronted with a large discrepancy
between the demand for exchange as represented by the quotas of the member
countries and the American obligation to supply dollars, which is limited to
$2,750,000,000. This discrepancy will be aggravated by the fact that member
countries coming to the fund for a means of international payment will put
up their currencies and obtain dollars which will be paid out of the fund;
whereas, since this country does not, for the most part make its international
payments by buying other currencies, there will be no way in which, in the
normal operations of the fund, we can replace these dollars. What this means
is that, even when we have an even balance of payments, there will be a tendency for dollars to seep out of the fund. This is too technical a question to discuss further in this paper, but I do want to point out that, though there have
been a number of official replies to critics, this point has been ignored, and we
have been presented instead with a discussion of whether or not there is likely
to be a scarcity of dollars in the general market, such as occurred during the
interwar period. To quote Dr. Harry White's paper in Foreign Affairs, January
1945: "Such a shortage, if it develops, will not be because of the fund but in
spite of the fund. * * * The fund cannot create a shortage of dollars." My
point was expressly that the ^und mechanism could create a shortage of dollars
in the fund."
1 have not been able to find a solution of this difficulty which seems to me
workable. Keynes' clearing union would have avoided it by making the obligation to supply dollars or any other desired currency equal to the aggregate
size of his clearing union. But I do not think it is practicable now to raise so
large a question, and it seems reasonably certain that the clearing union would
encounter greater objection in this country than the fund. The repurchase provisions of the fund agreement do not seem to provide an adequate solution of the
problem, if we assume, as is evidently implied and intended by the interest
charge and other provisions of the fund agreement, that it will be the countries
without adequate exchange resources that will use the fund. In any event
it ought to be made clear that the recapture of dollars would require the maintenance of the machinery of exchange control, not merely for the transition
period but permanently, and for current account transactions as well as for
capital transactions.
A third set of questions relates to the provisions for exchange-rate variation
and the methods of international trade adjustment. It should be on these,
rather than upon the restrictions on the use of the fund that success or failure
of the whole experiment should depend. I shall not attempt to add anything in
this short paper to what I have previously said about the problem of international adjustment. I have always favored liberal provisions about exchangerate variation, but on the assumption that this would be the rare, rather than
the usual, method of international trade adjustment. I have been disturbed
throughout the discussion by the great, and apparently growing, divergence of
American and British public opinion on this point. It relates closely to what
I shall say later about the British problem.
Unless we can find more common ground than has thus far appeared, I would
rather proceed on the postwar problems of adjustment case by case without
rules, because I am afraid we will descend into legalism, each country setting
forth its own interpretations of the provisions and then defending them on
legalistic ground. We shall need economic analysis of the most objective and
thorough kind rather than attempts to fence and hide behind forms of words.
One aspect of the problem of international adjustment on which I have
especially insisted is that, in our search for relieving the harshness which the
gold standard has at times entailed, the principle of two-sided international
adjustment must not become submerged. As a method of international adjustment, a system which is the "exact opposite" of the gold standard, as Keynes
has characterized the present agreement, seems to me meaningless. The phrase
often used, that we will permit exchange-rate variation but not competitive
depreciation, also means to me very little. I cannot see any escape from the
2
I have seen two papers which address themselves to the question I raised. See A. P.
Bourneuf, Professor Williams and the Fund, American Economic Review, vol. 34, December
1944, pp. 840-47, and W. A. Brown, Jr., The Repurchase Provisions of the Proposed International Monetary Fund, American Economic Review, vol. 35, March 1945, pp. 111-20.
Neither, in my opinion^ sees the problem I had in mind, but I cannot discuss them here.




322

BRETTON WOODS AGREEMENTS ACT

necessity for two-sided cost-price adjustments, in most circumstances, if we are
to have anything that deserves to be called an international system. Exchangerate variation does not provide an escape from price adjustments but changes
their impact. It becomes a question of how much of the adjustment is to be
borne by the internal economy of a country and how much is to be forced upon
others. If we look objectively at the interwar experience, we must recognize
not only that the gold standard had a deflationary effect on some countries adhering to it, and notably on England in 1925-31,3 but also that currency depreciation had a deflationary effect on the outside world, resulting in a vicious circle of
depreciation in one country after another; the most striking example was the
British depreciation of 1931 which deflated prices throughout the world. The
problem is a difficult one. The attempt to escape into a system of exchange controls and bilateral trade was really an attempt to run away from both the gold
standard and variable exchange rates.
One thing that has most troubled me during the entire course of the discussions
has been the reiterated insistence by the British that the responsibility for international trade adjustment rests on the creditor country. I cannot avoid the
conclusion that, taken against the background of this British discussion, the
fact that the negotiation with regard to principles of adjustment resulted finally
in the removal from the document of all references to two-sided adjustment and
the high-lighting of the one case of a possible dollar shortage means quite specifically that if we do not prevent a dollar shortage that fact will be taken to mean
we have not discharged our responsibility, and have therefore given the rest
of the world carte blanche to resume exchange control and trade discrimination
as before. It is not that I wish to run away from this responsibility. It is only
that I think it will not work unless there is a clear understanding that the
responsibility must be shared. There is no action wfeich a surplus country might
take which does not have its counterpart for the deficit countries, whether it be in
the sphere of price changes, trade changes, foreign investment, or any other
method of adjustment that might be explored. Recognition of this fact is the
only reasonable basis on which to proceed.
in
This brings me back to the British problem. From the beginning, I have felt
that England's situation in the postwar world will have a decisive effect upon
whether the world moves toward multilateral trade with reasonably free and
stable currencies or toward bilateral trade and currency arangements. As time
passes, the gravity of England's problem and its implications for the future become
only more clear. It is not merely, or perhaps mainly, that England has now
hanging over her an accumulation of over $12,000,000,000 of international war
indebtedness, growing at the rate of several billions dollars a year. There is the
further fact that her current account balance in the postwar years will show a
large annual deficit, owing to the loss of foreign assets, of foreign markets, of
shipping, her need of sustained high imports for the transition period, and the
probable requirement of some interest payment on the accumulated debt. England's current account deficit has been variously estimated at from $1,200,000,000 to
as high as $2,000,000,000 a year in the immediate postwar period. How rapidly
it will be corrected is a matter of conjecture.
Much emphasis has been laid in British comment on the necessity for maintaining full employment in both England and this country. The first effect of
full employment in England would probably be seen in her imports; there have
been estimates that at full employment her imports might exceed the prewar
level by as much as 50 percent. The effect of full employment in this country
must be divided into the direct and indirect effects. The direct effect on British
exports would be slight since our imports from Britain amount to a small fraction
of her exports. I have seen estimates which suggest that even the indirect effects,
through Britain's trade with third countries, would probably not remove more
than half of her current account deficit. Britain's problem is that her exports
must rise much more than in proportion to the general growth of production
and trade throughout the world, even on optimistic assumptions about world
trade and employment.
It is not difficult to see how England's problem complicates the general problem
of international trade adjustment. Next to the desirability of an expansion of
3
England's experience really proved little, since, as all are agreed, the great mistake
was in the overvaluation of the pound.




BRETTON WOODS AGREEMENTS ACT

323

American imports, toward which high employment in this country would provide
the chief impetus, the point most often made is that we can achieve international
trade and currency adjustment through American foreign investment. This
point is always included in the British statements so constantly repeated that a
creditor nation need never have a larger surplus than it wants to have; it can
always invest its foreign exchange surplus abroad, as England did in the nineteenth century, and in this way a dollar shortage could be avoided.4 But it
seems to me very doubtful whether in her special circumstances during the postwar period England would really welcome this method of adjustment if, as would
almost inevitably be the case, our foreign investment were accompanied by a great
expansion of our exports. Again, I am led back to the conclusion that in such a
complicated problem no one nation should put itself in the position of appearing
to assume the sole responsibility.
IV

It is essential to an understanding of the Bretton Woods agreement to appreciate the fact that it is primarily the result of a long process of negotiation
between the British and American experts, subsequently adhered to by the delegates of 44 countries at Bretton Woods. The gist of the agreement is that if this
country will create and maintain the conditions necessary for multilateral trade
in a reasonably free exchange market. England will undertake, after a transition
period of 3 to 5 years during which exchange control and bilateral currency
arrangements are permitted, to relinquish her controls and join a multilateral
exchange system. The agreement, however, carefully states that, even after the
5-year period, the member country itself shall be the judge of wThether the conditions are right for relaxing its controls. In weighing the adoption of the fund,
the essential question is whether there is a fair prospect that this bargain can be
consumated.
Since the Bretton Woods Conference, England has been negotiating a series of
bilateral currency agreements. The one with Belgium last October has been
followed recently by agreements with Sweden and with France, and others are
said to be in process of negotiation. Meanwhile, as the recent arrangement with
Egypt indicates, the controls within the sterling area are being tightened, and its
supply of dollars rigidly controlled. These facts, taken together with what I have
said about the extreme difficulty of England's position, her large war debt, and
even more important her large annual deficit on current account, carry a strong
presumption that during the transition years England will be moving further
toward, rather than away from, a system of bilateral trade and currency agreements and will find herself under compulsion to intensify, rather than relax, her
exchange controls.
Contemplation of this prospect has led me to wonder whether the transition
from the transition period will not prove to be the really crucial problem. A
set of vested interests and a network of discriminatory trade and currency practiced will have grown up which it may prove very difficult to break down. Against
these we would have the moral compulsions of the fund agreement. But with
the responsibility resting on us to avoid a dollar shortage, and the further implied
responsibility which runs all through the British comment that we must maintain
full employment as a necessary condition of the successful operation of the fund
agreement, it might be far from clear where the moral responsibility for failure
lay. Meanwhile, in a world comprising a fully managed economy like that of
Russia, a centrally planned economy in England, if anything like the Beveridge
model should be adopted, and some kind of modified free enterprise system in
this country, there will be much room for honest doubt as to whether a system of
multilateral trade and free exchange is any longer workable.
As I said in beginning this paper, I have been impressed from the outset of the
debate with the necessity of attempting to create the conditions under which this
country and England can embark upon multilateral trade with reasonably free
and stable exchange rates. If this could be done, the task of general international
monetary and trade organization would not be difficult. If it is not done, I am
becoming only more convinced, as time passes and the situation develops, that
the approach in terms of a general world monetary organization will fail. Perhaps among people genuinely concerned for the future of international cooperation
4
This, of course, refers to a general dollar shortage in the market, not to the special
shortage in the fund which I discussed previously.




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the issue boils down to a question whether adoption of the monetary fund, with
whatever defects it may have, would not compel us to face up to the logic of
its implications and to take the steps, outside the fund, which are necessary
for its eventual success, or whether, as I believe, it is necessary to face up to
the situation in advance. If England is to find an escape from the road down
which she appears to be heading, if she is to avoid the temptation of making a
virtue of her bad situation and using blocked sterling balances to develop her
trade connections bilaterally, she must have help during the transition period
from countries—and especially from this country—which are genuinely interested
in multilateral trade and stable exchange rates.
The situation calls for heroic measures, going far beyond anything that the
fund or the bank could legitimately undertake. I have suggested the continuance
of lend-lease for the transition period, but this now appears to be politically impracticable. I sometimes wonder whether the main effect of the Bretton Woods
debate has not been to shift the emphasis from the concrete problem, on the
solution of which the success of the Bretton Woods agreement must depend, to
more formal and abstract solutions which will give us a comfortable feeling
of cooperation without the actuality. Perhaps the most unfortunate aspect of
the discussion has been that in the heat of debate these two approaches have
come to be regarded as alternatives, whereas what we need in the end is both.
Some of the Bretton Woods delegates have made disparaging remarks about any
form of direct aid to England, and the trend of the hearings before the House
committee has been such as to suggest that if the Bretton Woods agreements are
adopted, there will be no direct aid—at any rate not in the form of lend-lease or
in the form of a credit on terms which England could afford to accept.

My preference, therefore, is to adopt the bank with some changes and to postpone the fund until more favorable conditions have been developed for its operation. Among these conditions, I would list, first, a thorough exploration with the
British Government of possible methods of dealing with her problem along other
than bilateral trade and currency lines. I would list, second, a thorough exploration of the problems of commercial policy. There is now in Congress a bill to
continue the Reciprocal Trade Agreements Act, which expires in June, with an
important new provision that the power to decrease tariff rates should be by 50
percent from the rates in effect at the beginning of this year, rather than, as
heretofore, from the rates in effect in 1934. I strongly favor the renewal of the
act with this all-important provision. Following its adoption, we should discuss
the possibilities of reciprocal trade agreements with England and in this connection explore particularly her attitude toward the most-favored-nation clause.
The fact has been emphasized in British comment on Bretton Woods that that
agreement binds England only to renounce exchange restrictions, after 5 years,
and says nothing about bilateral trade agreements. The implication is that
agreement on commercial policy will be a far more serious matter. One suggestion frequently made is that before entering into agreements about trade England
would want to have more assurance about our full employment policy; and resolution VII of the Bretton Woods agreements, calling for cooperation on internal
full employment policies, has been much emphasized as a necessary preliminary
to agreements on trade. Nothing would be more futile than to sign the Bretton
Woods agreement looking toward the eventual elimination of exchange restrictions while leaving the door open to the accomplishment of the same purposes
through quotas and other forms of trade restrictions. Clarification of Britain's
own problem and of what we can do to help solve it should go far toward providing the conditions under which we can agree to relax both currency and trade
restrictions.
As to the bank, there are two functions which it could perform in the transition
period, in addition to the making or guaranteeing of loans for specific projects of
reconstruction or development. In his testimony before the House committee,
Dr. White suggested that it might be necessary for the fund to make loans running
up to 8 years. This clearly contemplates something more than merely evening
up the short-term fluctuations in the balances of payments of the member countries. I agree that there will be need for longer-term loans which cannot be
stated in the form of specific projects and whose general purpose would be to
rehabilitate countries and restore their powers of production and of export to the
point where the countries would be in proper condition for engaging in thef




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325

shorter-term operations contemplated by the fund.5 For such a purpose the bank
would be a much more suitable instrument than the fund. It is on these grounds
that this kind of amendment of the bank agreement has been suggested by the
American Bankers Association and the Committee for Economic Development.
For the reasons I have given earlier, I would postpone adoption of the fund to
the end of the transition period and rely for exchange stability in the interval
upon exchange control, the bank, newly mined gold, and the $20,000,000,000 of
gold and dollar balances which are now owned by foreign countries and are fairly
widely distributed round the world.
M
The second function that the bank might well perform during this interval is
to serve as a center of consultation and cooperation on exchange rates. This
is a point that needs to be emphasized because in the minds of some advocates of
the fund its value lies not so much in actual credit operations as in the fac!tl
that it would be an agency of cooperation on exchange rates and on other monetary
matters. I can see no reason why, until operations by the fund are actually begun,
this function could not be performed equally well by the bank. The fact that the
bank would not be subject to a set of monetary principles, such as are provided in
the fund agreement, would in the circumstances be an advantage rather than
a disadvantage. It would mean, as I suggested earlier, proceeding from case to
case on the merits and would avoid the danger of a descent into legalism.
vi
There remains the question whether we have any longer any freedom to discuss
the Bretton Woods agreements on their individual merits, or must make an
all-or-nothing decision here and now. There are many who feel that the fact
that, in what we hope will be a series of major political and economic steps toward
postwar international cooperation, the Bretton Woods agreements are the first
to reach the stage of legislative decision gives them a significance that goes beyond
their own intrinsic merits or importance. Bretton Woods is the key to San
Francisco; Bretton Woods is the first step away from economic warfare; the
issue is isolationism versus Bretton Woods; a further conference on monetary
plans must at all costs be avoided. These are some of the statements being made
in support of prompt and complete acceptance.
I have some sympathy with this view but think it is exaggerated. We are
embarking upon a great and difficult experiment in a field in which, up to now,
the record has been one of failure. We must not content ourselves with the forms
of cooperation if there are honest grounds for doubting that they embrace the
substance. The procedure I have suggested would, I believe, promote rather than
impair international cooperation; it would hasten, rather than delay, the achievement, as distinct from the formulation, of our aims. The worst bargain we could
make, but unfortunately as matters now stand perhaps the easiest, would be to
adopt promptly the Bretton Woods agreements in toto but be left with the discriminatory trade and exchange practices and without the bases for genuine
cooperative efforts. The essential question is whether we should delay the'fund
and in the interval find a solution of the British problem or whether we should
adopt the fund in the hope that we will understand clearly that a solution of that
problem must be found, outside the fund but by methods that are consistent with it.
I am afraid, human nature being what it is, that if we leave the matter in the
latter way we will not do the job. Our only hope of success is to face the problem
squarely now.
Mr. WILLIAMS. I might begin by summarizing it so that you will

have my views.
Senator TAFT. Yes.
Senator TOBEY. YOU haven't copies enough to give us each one
here, have you ? With you, I mean ?
Mr. WILLIAMS. I didn't bring enough copies, but I could do it at
lunch.
Senator TOBEY. I wish you would see that we each get a copy furnished the committee.
Mr. WILLIAMS. Yes; I would be glad to.
Senator TAFT. Furnish the committee with copies.
8

Perhaps the best analogy is with the "League Loans" after the last war.




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Mr. WILLIAMS. Yes; I would be very glad to do that.
I think I can go through most of this from memory. As I say, I
followed the negotiations all along with the greatest interest, because
this is a subject which is very dear to my heart, really, and any criticisms I have to offer are not intended to impede international cooperation in any way; just the contrary. I felt, when the discussion
began with the publication of those two plans, the British plan and
our own, that the main question was whether we should approach
this problem in terms of a general international monetary organization or whether we should begin with the major countries whose policies and circumstances will have a dominant effect on the chara