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Authorized for public release by the FOMC Secretariat on 2/3/2021 BOARD OF GOVERNORS OF THE FEDERAL RESERVE WASHINGTON, D.C. SYSTEM 20551 April 11, 1975 CONFIDENTIAL (FR) CLASS II FOMC TO: Federal Open Market Committee FROM: Arthur L. Broida Attached for your information are copies of an exchange of correspondence between Congressman Reuss and Chairman Burns, relating to information on recent System intervention in exchange markets. Attachment Authorized for public release by the FOMC Secretariat on 2/3/2021 WRIGHT PATMAN, TEX., VICE CHAIRMAN RICHARD BOLLING, MO. HENRY S. REUSS, WIS. WILLIAM S. MOORHEAD, PA. LEE H. HAMILTON, IND. GILLIS W. LONG, LA. HUMPHREY, MINN., CHAIRMAN HUBERT M. JOHN SPARKMAN, ALA. WIS. WILLIAM PROXMIRE, CONN. ABRAHAMMIBICOFF, LLOYD M. BENTSEN, JR., TX. EDWARD M. KENNEDY, MASS. JACOBK. JAVITS, N.Y. ILL. CHARLES H. PERCY, ROBERTTAFT, JR., OHIO CONGRESS OF THE UNITED CLARENCE J. BROWN,OHIO GARRYBROWN,MICH. STATES JOINT ECONOMIC COMMITTEE PAUL J. FANNIN. ARIZ. JOHN M. STARK, EXECUTIVE DIRECTOR (CREATEDPURSUANT TO SEC. MARGARET M. HECKLER, MASS. JOHN H. ROUSSELOT CALIF. 5(a)OF PUBLIC LAW 304, 79THCONGRESS) WASHINGTON, D.C. April 1, 20510 1975 The Honorable Arthur F. Burns Chairman Board of Governors Federal Reserve System Washington, D. C. Dear Dr. Burns: You are perhaps aware that on Monday, March 24th, Treasury Secretary Simon testified before the Subcommitte on International Economics on recent interntional monetary developments and the outAmong the subjects discussed was intervenlook for monetary reform. tion in exchange markets by the Federal Reserve and the Treasury. The Secretary explained that such intervention (occurs only when the Federal Reserve and the Treasury concur on its (desirability. He also reiterated that it is United States policy to intervene only to curb or prevent disorderly conditions in exchange markets. Disorder in exchange.markets the Secretary defined as a situation in which buying and selling rates for the dollar are abnormally far apart and the rate of transactions has fallen to an unusually low level. The "disorderly market" guideline for exchange rate intervention enunciated by Secretary Simon has in fact been recommended by a bipartisan majority of the Joint Economic Committee in various reports. Some $700 or $800 million of net intervention in exchange markets was undertaken between February 1 and March 24, 1975. Was this disorder in exchange markets of sufficient seriousness to warrant intervention of such substantial dimensions or was intervention undertaken to "prop up the external value of the dollar since it had fallen to an unduly low level," or "smooth exchange rate fluctuations," or "peg the dollar to a particular rate or within a particular zone?" To inform us about the amounts of and reasons for exchange market intervention, the Committee would appreciate receiving monthly reports. I would like the coverage of these reports to begin on January 1, 1975, and to provide a daily accounting of intervention conducted with respect to the dollar and each foreign currency, along with the market conditions or other factors that made such intervention seem necessary. Authorized for public release by the FOMC Secretariat on 2/3/2021 The Honorable Arthur F. Burns April 1, 1975 Page 2 Dr. John Karlik, Senior Economist, will be most happy to work with your staff on details of the reports to make sure that their preparation does not become onerous. For example, a sentence or two regarding the need for each daily initiative to intervene will be sufficient. I hope that the first of these reports, covering January and February, could be available within two weeks. Sincerely, Henry S. Reuss, Chairman Subcommittee on International Economics Authorized for public release by the FOMC Secretariat on 2/3/2021 COPY April 8, 1975 The Honorable Henry S. Reuss Chairman Subcommittee on International Economics Joint Economic Committee Washington, D. C. 20510 Dear Henry: Thank you for your letter of April 1 inquiring about, and requesting information on, recent intervention in exchange markets. We of course wish to cooperate with the needs of your Subcommittee. As I am sure you will appreciate, your request raises issues which need to be discussed with the Treasury Department as well as within the Federal Reserve. I shall be back in touch with you on this matter as soon as possible. In the meantime, members of the Board's staff may discuss matters with Dr. Karlik, as your letter suggested. Sincerely yours, (signed) Arthur Arthur F. Burns
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