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885 A meeting of the Board of Governors of the Federal Reserve SYstext Was held in Washington on Tuesday, June 6, 1944, at 10:00 a.m.. PRESENT: Mr. Mr. Mr. Mr. Mr. Ransom, Vice Chairman Szymczak McKee Draper Evans Mr. Morrill, Secretary Mr. Bethea, Assistant Secretary Mr. Carpenter, Assistant Secretary Mr. Clayton, Assistant to the Chairman Mr. Thurston, Special Assistant to the Chairman Mr. Goldenweiser, Director of the Division of Research and Statistics Mr. Dreibelbis, General Attorney Mr. Thomas, Assistant Director of the Division of Research and Statistics Mr. Wyatt, General Counsel Mr. Gardner, Chief of the International Section, Division of Research and Statistics Mr. Hammond, Chief of the Correspondence and Publications Section, Office of the Secretary Mr. Knapp and Miss Bourneuf, Economists in the Division of Research and Statistics Mr. Berntson, Clerk in the Office of the Secretary Messrs. Sproul, Williams, and Davis, Presidents of the Federal Reserve Banks of New York, Philadelphia, and St. Louis, respectively Mr. Creighton, Chairman of the Conference of Chairmen of the Federal Reserve Banks Mr. Grady, Chairman of the Federal Reserve Bank of San Francisco Mr. Brown, President of the Federal Advisory Council and a member of the American delegation to the international conference on the monetary fund 886 6/6/44 -2-Messrs. Williams and Knoke, Vice Presidents of the Federal Reserve Bank of New York Mr. Bopp, of the Research Department of the Federal Reserve Bank of Philadelphia Mr. Ransom stated that Chairman Eccles had been named a member "he American delegation to the international monetary conference Which - had been called by President Roosevelt to meet at Bretton Woods, 4"ampshire, on July 1, 1944, that, while the Chairman was in Utah at ,present time, the other members of the Board thought that some 41tter8 connected with his service on the delegation might involve (Illesti°118 which the Board might think it wise to consider with the view giving him the Board's advice should he request it, that the taekber 8 of the Board felt that they would like to consult with repre414ati,p "es of the other its of the System, and that this meeting had *' called for that purpose. He expressed the opinion that the System Q0Lbt ---Y had a great interest in the matter and a considerable stake It the the -4-nal outcome, and the hope that the United States would accept Plan le J.th such changes or modifications as might result after full 8Si that V148 the °I1 by those charged with reaching final decisions. He felt the proposal might be regarded as a test case of whether the world 11°11 Prepared for full international cooperation. In order to make disc, ''sslon at the meeting as profitable as possible in preparation t°r the rao.„ "etarY conference which had been called to discuss the monetary d 8 °Iltlined in the joint statement, he suggested that the discusei °11 at th. 18 meeting be limited to the question of how to make the 887 6/6/44 —3— international fund serve the best interests of this country, including he Federal Reserve System, rather than of the question whether an illternational fund should be created or some other mechanism devised. Mr. Szymczak referred to the discussions at the Treasury by ataff representatives of the Treasury, State, and Commerce Departments, the P°reign Economic Administration, and the Board, and to the discus8448 /8hich had been held on a technical level with representatives of ether countries, and reviewed briefly the circumstances in which the itternationaa conference was called and Chairman Eccles was asked by Seel'etarY Morgenthau, at the request of the President, to serve as a 41e4er of the American delegation. He said that the particular mat— tot for co nsideration at this meeting was the joint statement of the Piarl for the monetary fund and that the meeting might consider the elezents of the plan which were frozen at the technical level and then the aPecial questions which had not been decided. qi011 He felt that consider— should be given particularly to the effect of the operations of the 1\14 ' 1 on the credit situation in this country and the credit powers SYstem, He also said that consideration should be given par— tienlarly to the management of the fund. He asked for comments and 'estions with respect to (1) the effect of the operations of the tlIrtd °fl the economic stability of the United States, (2) exchange rates, (3) the effect of a possible gold inflow on member bank reserves, (4) the _ poWe, that the System might need to offset increases in excess 888 6/6/44 reserves of member banks, (5) "hot money", and (6) how the funds for this C ountry's contribution to the fund should be raised. As a background for the discussion, Mr. Goldenweiser distributed 4rici discussed the following statement of principal points to be covered the discussion of the monetary fund: Status of the plan for International Monetary Fund "I. Fund. Joint statement on fundamental points in the Fund agreed upon by experts of the United States, England, Russia, and other countries. No Government is formally committed. In practice, the Governments are committed, except that Congress can refuse to ratify. Substance of plan "I. . 3e. 22, : 122L To contribute to the restoration of international trade as an essential part of world economic recovery and of achievement and maintenance of full employment. "II. General method Establishment of machinery for international cooperation in maintaining stability of exchange rates, with opportunity for orderly adjustments without deflation or harmful restriction of trade. Creation of a reservoir of various currencies available for settling balances. (b) Fund not in any way to interfere with general exchange market but only to deal with central authorities at their initiative. 1•Source of funds Contributions by member countries aggregating about $8 billion for the United Nations and the nations associated with them, $10 billion for entire world. Form of funds Gold and local currencies. Gold to be 25 per cent of quota or 10 per cent of holdings of gold and gold-convertible exchange, whichever is the smaller. v Size of quotas Details to be worked out at conference. The United States Treasury recomiaendation is that the formula take into consideration national income, international reserves, foreign trade, and variations in exports. 889 6/6/44 -5Elelts of countries to use of Fund They are entitled to draw up to their quotas plus their gold contributions. More, with approval of Fund. Limitations — not in excess of 25 per cent of quota a year and subject also to such limita— tions as are indicated in subsequent para— graphs. (See VII, VIII, IX, and XIII.) "vII. Fund's powers, to influence policies of members Fund can serve notice that it will not permit further drafts after an indicated period if a member is using the resources of the Fund in a manner contrary to the purposes of the Fund. Before giving notice the Fund must issue to the country a report explaining the reasons. (b) Fund exercises wide control over exchange rate adjustments and exchange controls. (See X and XII.) (c) Fund may require capital movements to be con— trolled. (See VIII.) "VIII. Current trade vs capital movements The Fund is for the purpose of facilitating current trade, not to finance capital movements. It has real power to regulate substantial capital movements from a country using the Fund for that purpose. Only general moral suasion if capital exports are met out of other resources. Scarce currencies When the supply of a given currency becomes low the Fund can declare it to be scarce and can apportion its supply among member countries. Members can then ration the scarce currency among their nationals. Exchan e rates a To be agreed upon between member countries and the Fund. (b) Fund cannot change a country's rate without its consent. (See XI.) (c) Member can change by 10 per cent without Fund's permission, other changes only with permission, Fund may be asked to make decision in two days if further change requested does not exceed 10 per cent. Fund is expected to permit a change when it is essential to the correctionofa fundamental diseouilibrium. Fund shall not re— ject a requested change necessary to restore equilibrium because of the domestic social or political policies of the country applying for a change. 890 6/6/44 -6"(d) Fund expected to be more willing to approve changes during postwar reconstruction period. (e) It is understood (though not stated explicitly) that a country which depreciates its currency must make up the resultant loss to Fund. "XI. Gold value of currencies Value of currencies to be expressed in gold. Fund can change gold value of all currencies at once (which would not change exchange rates), provided all countries with 10 per cent of vote agree. E2s2hanat controls Exchange controls to be removed by each member as soon as possible, except in respect to capital movements. No new controls or special currency arrangements to be made without approval of the Fund. Other gold features a Countries with gold contributions of less than 25 per cent of quota must bring it to that level when their gold and foreign exchange resources increase above the amount of their quota. (b) Countries with gold and foreign exchange reserves equal to their quota must pay for half the foreign exchange they obtain from the Fund with gold. (c) Countries acquiring gold and foreign exchange beyond the amount of their quotas must use half of it to repay the Fund for exchange they have obtained from the Fund. (d) Countries must sell gold through Fund, if they can do so as advantageously as otherwise, except newly-mined. (e) Countries' obligations to buy or sell gold not stated, but rather implied in undertaking to maintain exchange rate. Should it be spelled out? V. Votes in Board and in executive committee closely related to quotas. Most actions by majority vote. Four-fifths vote (including vote of member concerned) on change of quota. committee of nine members. Executive nxv. Eldit of withdrawal Upon notice, withdrawing country obliged to meet its obligations to Fund in a reasonable time. AVI. Matters of special concern to Federal Reserve System interest in economic stability to which the Fund should contribute. TaYGeneral 891 6/6/44 —7— "(b) Regularization of gold flows. If the plan is successful the United States will get less gold than if no plan was adopted. If it fails, the United States is not likely to get any more than it would have received without the plan, or is it? (c) System has an interest in the initial exchange rates to be established. (The higher the pound is, for instance, the more export surplus we are likely to have.) (d) Specific points to watch: (1) Manner of paying in United States contribution. (2) Participation in management through membership on a committee to help select and guide American director. (3) Additional powers to absorb member bank reserves. Do we need them, and when? (4) In preparation of plan System might favor: (a) imposition of an interest rate on funds drawn from Fund above country's gold contribution; (b) some method to regulate period for which funds are kept; (c) more explicit and effective provisions for preventing speculative capital movements; (d) explicit statement that the Fund can make a report to any member country, whether it is using the Fund or not, indicating that its actions are contrary to common purposes." 141\ G°1denweiser also distributed lists of (1) the chief points of agree- tile" irl the at the work:411i joint statement and (2) the chief points which had to be setconference and other points that might be discussed. During Mr. Goldenweiser's statement Mr. Alvin Hansen, Special C Adviser in the Division of Research and Statistics, and Mr. Wheeler title° 'Director of Research at the Federal Reserve Bank of San Franic)ined the meeting. 892 6/6/44 -8Ur. Ransam stated that the procedure of the meeting would be elltire4 informal and that he hoped the visitors would feel entirely to raise such questions as occurred to them durinr; the discussion. In response to an inquiry from Mr. Szymczak as to whether he 4t1,97," ,Y comment to make at this time, Mr. Brown stated that he did not thai. " there were many things being considered at the Treasury some of *lich Were regarded as settled, and that he thought he would have to be in the Position of listening rather than discussing at this time. Mr. McKee asked Mr. Brown if he were to be a member of the Ar4ericaa delegation in his capacity as President of the Federal Advisory C°1 1 or as a " private banker, and Mr. Brown's response was that he %Med that he was asked to serve as a private banker and not as a Npresentative of the System. Mr. Sproul stated that the board of directors of the New York Ilk had expressed its position on the stabilization plan last October, 411"that he hoped the directors would express their views on the more 4ceht deve lopments with respect to currency stabilization. It was his that the plan as indicated by the joint statement was the wrong way t° 415Proach the problem, and he said that his recomiendation to the 4/1'heorning international conference would be that it postpone action 4 Plan such as that proposed and that in the meantime the conference °441'es itself to the borrowing and lending problems that would be 1*4ent in the transition period following the war. Having that positiorl II t° the stabilization plan, he felt that he was not in a position discuss the proposals with the lack of bias that he would like to have. 893 6/6/44 -9Mr. Ransom stated that he did not want to limit the discussion, btzt that it appeared that the international conference would be limited to the discussion of the joint statement on the fund and the plan for the intem,tionai bank, and that in the interest of reaching concluicins at this meeting they were the matters that would have to be conaiderede Mr. Sproul stated that he did not want to be drawn by his part . iel.PW0 4 1 -n 4-ri a discussion of details of a plan into a System approval of the niellet rY fund plan as proposed, and that the procedure which had been t°11°1ved of discussions at the technical level, with no commitments, was 4ading in evitably to the position where, without having expressed its 1'4118 0X having been able to develop its point of view, the System would be e°111Initted on a program on which it was stated there was to be no varia- q°4excePt as to details. He felt that in this country and in some other Ntries the plans would have to be ratified by the legislature, and that "el*e "Points of view might have to be presented at that time even by the different parts of the Federal Reserve System. Mr- Szymczak stated that, as was well known, the initiative was riot ih theBoard's hands, that the members of the Board had talked with }44rs, Goldenweiser and Gardner and had made suggestions from time to M[t e regarding questions raised during the discussions at the Treasury, 41cl that some of these suggestions were accepted and some were not. He 4ai4 mthEct aver a period of time the whole plan had been changed to Ori&4rable extent and would probably be changed further at the 894 6/6/44 -10cenference, and that regardless of what came out of the conference the system would still be greatly interested. He thought it was imporn Eccles and the System members of the technical staff tant that Chad Of he conference have some idea of the System's position on the various (Itie8ti°ns that would come before the conference, particularly from the etarldP°int of the effects of the plan on our domestic economic situation ahd on the powers of the System to influence the internal credit situ- '. McKee stated that this meeting had been called at his sug10/1. and that the reason for his suggestion was that he felt that at acl4le time in the future he might be called upon to vote upon questions NefItle --ed with the monetary fund and he wanted to have as much informa- ti-°11 a8 Was not to possible as a basis for his decision. He made it clear that it his intention to commit anyone attending the meeting but rather cbteln their comments and suggestions for the guidance of the Board 414king its decisions in connection with the whole matter. Mr. c114aion8 Goldenweiser gave a brief chronological review of the dis- and the developments from the beginning of the consideration of qa141ization plan to the time of the publication of the joint state111141t of the plan, and John Williams asked to what extent there was Il'eeriient on the technical level by representatives of all the united tiatiorls. Mr. Goldenweiser stated that he did not know exactly to what kterrt, the t414t the was agreement by countries other than England and Russia, joint statement was sent to certain countries, including Mexico 895 "A4 -11- andErazil y but that he did not think formal acceptance was received frozall of them. Mr. McKee questioned whether it was possible at this stage to ad , oN a plan for monetary stabilization and expressed the opinion that it Would be necessary first to remove many of the causes of dis• rlum that would exist after the war. In the discussion of this Point 'i1r. Goldenweiser stated that at the discussions of the plan the r ePresentatives of the Board had continuously taken the position that the 4' uby itself was wholly inadequate and that they would not t 411 ' 4' the P '-und unless it were made a part of a program for international. 14404_ relief, and other things that were necessary to restore international 41% Hansen stated that the important question involved was Whethel, - we would be willing to engage in international economic collabc)l ation -j addition to political collaboration, that the latter would ot without the former, and that it would be necessary to work ollt a way by which we could bring about a management of trade, exchange 3 high 14ternational lending, etc., in a manner which would promote v. 1 Of Prosperity and trade stability but with such flexibility qe Red, necessary to meet the varying conditions throughout the world. °Ilbted that this result would be obtained if each country proceeded 414Pe tentlY or engaged in bilateral arrangements. He felt that it : kte wiliehwt.he utmost importance that we have international institutions °uld have the continuous duty of studying these problems, work- them and making proposals and suggestions to achieve desired 89B 6/6/44 —12-- °Nectives, While he thought that it was necessary to work out the details as carefully as possible and that the result would not be eatisfactory to everyone, he said it was essential that this country clecide that it wanted international collaboration and then proceed to Ilrclollt the details in the best way it could. So far as the plan for the monetary fund was concerned, Mr. 11411sen stated that it had had the widest possible discussion throughout the World, and that as a result of that discussion it was a very major iirtP1'°Ireinent over the earlier plans that had been proposed, particularly 8i4Ce it addressed itself directly and exclusively to the problem of 41(34etarY stability and was not mixed with relief, reconstruction, and (Itt matters. He pointed out that the present plan took care of a l'er71-41Portant Problem which was criticized in the earlier plans in that it Made specific provision that the resources of the fund would tlq be wasted in the transition period. He thought that the plan might flIrther in the direction of specifically providing that, when etlIthe hdgment of the fund exchange controls were thought to be desir— ke necessarY in order to bring the balance of payments of a coun— 4 irto 1. 'lnel that could be done. 14. Davis stated that, while he believed in international collab— and c oncurred in what Mr. Hansen had said, he was less interested the detail s of a plan than he was in the type of management for the t'e4()11 that g ood management could get good results from inadequate or el'etl bad le gislation and that, conversely, had management would defeat ion 897 6/6/44 -13g()°c1 le gislation no matter how carefully it was worked out. He was tav "of an institution that would be permanent and would be able to reach the desired objectives, but he did not feel that the plan tor, the monetary fund would meet the more pressing questions that 170441 be present in the transition period following the war. He th°11ght that, while it might be possible that we were ”getting the %It before the horse" by not considering these other questions, they were tiot the subjects for discussion at this meeting except to the eXtert that the discussion might cover the bank for reconstruction and 4eIrel°Pment. Mr. Sproul did not disagree with the fundamental idea of interriational collaboration but agreed with the opinion expressed by Mr. McKee that We Were not, 'L14)4 eta escape getting first things first. He felt that the reserva- clauses in the joint statement of the plan and the 111'W4ioris to take care of old debtor countries and young countries indiLtecl that we were trying to do something at a time when it was impos4b1 e tc) d° it. He felt that at this stage it was more of a plan for etelicling credit and increasing international trade than r°1% ttabilization. Mr. Sproul also suggested that those 11°1"king with the plan state what the important points of the *1'4411dPoint of the System and what positions might be it was a plan who had been the plan were from taken with re- to these points, and that then the representatives of the Federal Banks present could discuss these points and give their l'e'aPect, to them, Views 898 6/6/44 -14Mr. John H. lUlliams made substantially the following statement: b I think that the real question at issue is the difference Retween Ur. McKeets point of view and that expressed by Mr. 24eml at the outset of this meeting. I can not help but feel that the System has never really faced up to the first and bIlltidamental ouestion which is not whether this is merely the aest approach but whether this is the best time to make the trr°ach. As far as I know, the discussion has all been at ef.„Lte chnical level, and I think there is a danger of the c .m bei 'qQt.e ng drawn into acquiescence in the plan and a dis7 tlills81 "of the details of how to safeguard the System within the P1an without ever really having stated its position on a e aPproach and, more particularly, on the timing of the. wir°ach. That, I think, is partly due to the loose way in. th-c" things are done in Washington. The technical discussions breluselvee have been informal, and at no time was the matter itckleht to a head in such a way that the System could declare bliZe s Of course, the Board has been keeping itself informed, '"ere seems to have been no occasion on which the System What it thought about this plan. I would feel that that t) ,"' le the first auestion. To let it go by default would be the -lost serious mistake that the System could make. I think thal. we are entitled to have a judgment about the plan and tha, u ' 1 level judgment should be expressed not merely on the technibut at all levels. a 1. I have followed these plans from the beginning and after 1.4 1 4:71°ng interest in international collaboration and stabi°n. I have written a new memorandum on the joint stateimpr) and my present feeling is that, while the plan has been zlow red in specific ways, almost all of which I approve, we can "ave clearly revealed for the first time the fact that it I tOct be done. This is a stabilization plan in name only. nk there are various reasons for that which have come out is ' tIr course of this last year's discussion. The first reason oilts"at both groups of experts misjudged the problem at the iram and had a primary interest in doing something for the 1,trune,'ate postwar period. Lord Keynes was thinking about the sari'date postwar period. There is plenty of evidence in the iriteY drafts of the White olan that that was his immediate tilhPet. This conception of an international stabilization bY a',which is now a monetary fund, has been fastened on us. that ;:1"(3ng approach to the problem. It has now been recognized traris he aPproach is unwise in so far as it applies to the post1on period and is foresworn, Nevertheless we find ourcarrying on with this kind of a document. I think it J 899 6/6/44 -15wrong, and yet I feel that most of the affirmative changes • the In draft have been Food. Certainly, I approve of the esent distinction between the transition period and the trg-run program, but I still want to see the plans for the " t 1181tion period to make sure that this plan is not going 0 be used as the "catch-all". r , e I certainly approve all that Alvin Hansen has said about a; ‘ 6 ,,e ohan ri control, I have suggested that they go much further ti adroit of exchange control for the young countries ' parha,, c111r1Y- I am in favor of these various modifications that / have ueen introduced and I think they should be carried further. been in favor from the outset of greater exchange flexiand these changes please me, but when I look at the ate/ fient as a whole I am more disappointed at this point than zat:117 earlier stage. I conclude that international stabilithiL.1011 is not possible urtil we have gotten post some of these --"nowns of the transition period. prai I do not blame the British at all. There is a chorus of reai-.e s in the British press to the effect that the plan is a ae.—letio document and that they have what they want. They /14tat exchange rates are the normal means of adjustment. . ancjrIctive measures are no longer in the plan that the British 1WSt;ans have made, but they seek to sanctify any practices may wish to follow with our blessing. I do not the word "stabilization" was taken out of the name o 'net Plan because it is no longer that. prizakt., this stage, I think it is a question of timing and not : 1 11Y the type of approach. Quite possibly, if we could get, thinv,st these questions that so greatly worry all of us, ?veryOf 6 -1r,, g/V°111d Work out satisfactorily. We don't kncye; what kind thil:Zerience we will have in the postwar period. The important the t 18 that the rest of the world may expect more from us in ciat"aY of stability than they will get because of the diffiit °f handling our own situation. When you come to England, have j15 clear to me that they could not go further than they do 11, 43-n this draft. They are surrounded by difficulties. I izyt,0' wonder either at their saying that the fund must take the e'ccount fundamental maladjustments. That is the nub of a sti°n. The essence of stability, which I would define exclia,;40-way adjustment at a stable rate of exchange in a free markPt, is out. It looks as though the experts had aefu el4!1,,I, gone through the previous documents and taken out ., . 4..ti ninLr that expr'e mph 'ssly, and almost everything which by Could suggest that there are any teeth in this plan to a.st7 900 6/6/44 -16Of exchange stability. praise from England. This is greeted with a chorus , We say that it is only in times like these that we can ie cooperation and that we will agree to ' something like this. :2!ever, my feeling from surveying the whole experience and rPathizing with the task of the experts is that it can not i. cons and that it is a mistake for us to delude ourselves c;(1.0h thinking we have done it. In the field of international t ration, there is little in the record to indicate that 11-;7 11 grow after the fact. There are so many reasons why tialldlcns can disagree and so much plausibility to each case dr'at it becomes very difficult to say where we will really the line and where we will get "tough". I do not think they sY will do it with a document of this sort. F 1,11b1, I think that the Bretton Woods conference will be a wo,Zer-startip conference. I would like to think that there be a free discussion of all the possibilities, but I it will get down to a discussion of details as we were about we to do. I feel that comes logically a little later when t420Ille to the draft stage at the legislative level, at which eZe there would be ample opportunity for the System to get ilij ideration of the particular details in which it may be it -" 1‘ ted- It seems to me that now is the time--and perhaps to the first time--that the System has had an opportunity bri'sclare itself as to what it thinks about this plan. That eflY is the conclusion I have reached. kee.,,Thi8 is a stabilization plan with all the stabilization left out, and if the English public is to be permitted the; ritsrPret the plan in the way they are now doing I think allyoe wibe grave reasons for incrtninations later on if ia rile mentions that this is a stabilization plan because there choo°°'41 in it for them to do practically anything they may been "to do. The London Times and the London Economist have have verY emphatic in their approval. Lord Keynes is said to Tr thsaid that this plan is the opposite of the gold standard. at xlot so, I think that we should declare that this can We he;", the oPposite of the gold standard. That is the stage it +L:e v,,13 now reached. I say that either teeth should be put °Perat 134-an and a fair test made as to whether we will coin this way at this time or we should say that it should e be,cstponed . thinkI„ t_hink there are many things we could go back to. I talk got off on the wrong foot in the first place. We can relief, reconstruction, and international lending and 901 6/6/44 -17t bor rowing, but I think the investment bank is more pertinent ,° the immediate postwar situation than the fund, and I would ange the order and discuss the bank and not the fund at this u1/118- There is the lonPer-range investment that Mr. Hansen 48 talked "Pla for about and worked on a great deal, and there are stabilizing prices and the whole field of commercial ov°4c3r; f those things can be discussed. I think it is a question donest things first merely in order that they may be well . That requires cooperation at every stage of the process f that there is no lack of international cooperation involved. the British were now at the point of seeing how their exTt trade was going to develop after the war, how they were 118. to get out from under the sterling balances, which must be azount to $8 billion, and what their postwar program would prL and if we were relying frankly on exchange control as the (10- 117 method of ' achieving exchange stability as we have to arli ' d I should say that we were moving in the right direction that at the proper time the stage would be set for a conpayi Qeration of currency stability. But as it is now, we are thini, ng,lip service to currency stability. The public will that that we have done the job and the British public will th —T j we have done it according to their likes. Doing it 118"_involve5 tir :notice;acceptance of their point of view. They have put this puts us very definitely on the spot. The 14 1)4:time the dollar is scarce they will say that it is up to 011.1 it will only be half up to us. We do not want to put lio ni s in the position where we have to put up more dollars That n'er what they have done or what policy they are pursuing. 18 a way of dodging the issue. • I h appro. ave said all this without a word about my preferred Perhaach cd. going from the big countries to the smaller ones. Ps 0/14 . a / should not talk about that because it could come 1)14 'ter they have decided to defer the plan under discussion, interntirTnlY convinced that a world-wide approach to an is ba-' 1.°nal monetary fund is the wrong approach. I think it zatio:". on an inadequate theory of international trade organithe and I have thought so for many years. I do not like !Nate ,21 ' applying one system to all countries since they '&11rict3 "-Lferent stages of development and have different the -°11s- The essence of monetary stability is to stabilize that °r currency and all else flows from that. If you do I% it much easier to permit of exchange controls and pe tiot re41 ; ate ff:ajiatioIlsfor the younger countries. That does stability. ? latit8Tren years ago I suggested that England needed more 1114' pu e than we do, and I still think that. I can not help -eel that -at as Ion, - as England remains a great international 902 6/6/44 —18— !Ilade center she has a great responsibility to the rest of the world that she is not accepting. The British do not seem itp? realize that as a great center they have a great responsi— -itY for keeping trade free and open and for maintaining : a bilitY of exchange rates and not practicing bilateral trade e.,4.1sangements. The trouble with the English is that they have :Vs been able to convince themselves of the essential, and en universal, rightness of their point of view as they see Their position was never adopted on the Continent or rrLsiled by the young countries. A protective policy is the regA policy for a young country. It would have been absurd cl, r this country to have pursued the British practice. What polnates and determines the organization of trade is the andleY, form of organization, etc. of the major countries, in England is a major country. I am not so much interested larWhether we confine it to these things or put it into a er Plan, but I do not want to see England getting away 81.1`e. Practices that are inappropriate for a major country if h The onestly believes in multilateral international trade. eL f°rel I can not help but feel that the first question torr, Federal Reserve System is what its attitude is toward this'due kinA SYStera u of a plan. That is question No. 1 and I think the view_ owes it to itself to draw up a document expressing its it about currency stabilization and this plan and submit ""ere it should be submitted. X ts The whole procedure here has been fait accompli and it ther4ng to be embarrassing to say anything. We have seen thsrpg?ing on and it gets to be a steam roller. But I believe be a way of doing what I am suggesting which could not thled obstructionist or defeatist. You could simply say tonetYour judgment, after reading the last draft, is that teae. 17 stabilization under present circumstances is not you e. You could not know that at the beginning, and now Therl'an give your supporting evidence on it very effectively. ProbiY 211 could say that there are, however, many international bat° ' 1/13 of the transition period which must be cleared up atabl ;?.we can seriously approach the question of monetary I we'Llzation and that that would come up in due course. If to : 1! ,4 advising Congress when they get this, I would tell them ylorV"' it on the shelf for a year and to ask for, and start to °112 plans for the transition period. take have a feeling that the acceptance of this draft will thie 611e heat off" the transition problems. If you adopt tor tPlan, there may be less emphasis on what you mean to do te transition period. There will be nothing more enliven— 'an to say that we do not propose to go further with this 4 903 6/6/44 -19we have seen in detail what it is proposed to do in the next three years. I think you would then find a very they wouldemphasis among the experts, and it might be that do an excellent job for the transition period. .4Y conception of the approach could be worked out ith the plan. I feel that there are many representat ves of the smaller countries who are caught between two elres. They want to do something in the way of international oration but they do not want to run out on anything whert , the United Nations propose. There are a number of them oti; w°uld prefer to have the United States, England, and bil?r leading countrios go ahead and work out currency stan-4-14 and let them adhere to it. They feel that that would eerve to them some of their freedoms more effectively and they would know better just what they are doing when elley adhere to a central plan of stability for the leading tarrenoies. I think that the ouestion of timing is all itait tkiri lgam just as convinced as I can be that we would about these plans today if the two groups had tgotten off on the wrong foot. They were thinking funda4 ; 4 Y about the transition period, and, while they have '°resworn that, they still go on with the plan. j ha 0 think there is evidence in the draft that the expers c(L'aken thoucht of the various shades of opinion in their to -;:11.es and have tried to remove fears. It is an absurdity it Z.1:4 that the plan does not affect our sovereignty and that mo"-11 be costless to us. I think there are a lot of people in favor of this plan in the name of international Coop pereration because they do not want to start off the postwar with a negative approach. As it is now, the plan is rici 'and if I were a member of the Board of Governors I want to go on record as to the unwisdom of the approach at erIce.74-s time and I would not want to be beaten off by refer8 to international collaboration. tdr. uansen said that Mr. Williams had stated the vital issue, WoZ ch wa 1kt. what kind of monetary stabilization we are to have after the He did not think any country was going to let any kind of intertikti cch ::::nt compel it to deflate its economy, and tlit We opt that point. The proposed plan in his t4I 24W°111d Provide for orderly exchange adjustments under an interScheme Without that we would have loose or wild exchange 904 (*(44 —20— (lePreciation on a competitive basis or at least the freedom for it rithollt r estraint. He felt that the proposed plan would exercise 'lora' restraint against unsound policies and that the issue was not °(change s tability but internal stability. In the ensuing discussion, Mr. Creighton inquired whether the Ilegest.0 1-ne made by Mr. Williams had been presented to the Treasury irl.°r to th e announcement of the international conference, and Mr. Szw, r "Ponded that they were not presented formally but that the Treasilry Was fully aware of Mr. Williams' position. Ur. John H. Williams stated that Mr. White, Director of Monetary 4eeeareh of the Treasury, visited the New York Bank during the early 6tageg of the discussion at which time the Bank's objections to the aPproach of the thite plan were presented. Mr. Williams also said that hedk not feel that there had been an appropriate occasion to do more tha h —41alte suggestions and ask questions until a definitive document 174 Prepared, but that now that a final document was available he could i`Priezs an opinion about it. 14r" Creighton made substantially the follming statement: for this President JulY 1st,meeting has now been called by the pro, I believe that we should consider the proposed ain:Z'am.and offer suggestions for its improvement. If we tIllth the suggestions made by Messrs. Williams and Sproul, une Federal Reserve System should so advise the Treasury 41_41,1:lel-IL The Federal Reserve System has a real responsi— and we should contribute all possible to help formulate the ‘Jeet plan. ' till, At the meeting of our directors in Boston on Monday of dis`' culleek, this pronosed international monetary program was tlire,:sed at some length. It was the consensus of our ' - °1's that it would be much better for the United States, 905 —21— itr possible, to join in some plan rather than to allow the eting of the representatives of 34 nations at Bretton Woods b- adJourn without an international plan. Various plans have trn discussed in Chicago, New York, Boston, and in most of Federal Reserve Banks by our Treasury experts and others, ;:Q it does seem to me that after one and a half years of study sh°111d be ready to approve a definite plan. I may be mis— to j aled, but I understand that Russia is now ready to subscribe witl,"e Proposed plan, and Russia has not collaborated too well United States up to the present time. j Pat. The completion of a monetary plan with 34 nations partici— to lng is at least a reel start. While it may be impossible all : I1°1'k out a perfect plan at the moment, still the fact that selternational monetary program has been completed and sub04 1: to by the nations should have a very important effect Other international postwar programs. it 4 In the main, the plan seems to be worth while on its own. pa 's a test case. If we can not get together on this corn— direct monetary program, how can we handle the more iva cated postwar problems with full collaboration? There (long° vote at our board meeting but our directors without " favored international collaboration. At this Point the meeting recessed and reconvened at 2:30 p.m. with the Se a-m attendance as at the end of the morning session. Mr. p ' radY said that it seemed to him that it was necessary to leolt into the ba Were ckground to see what British policies and intentions °rder to judge whether the Dowers which England would get under PNP"ed Plan would be used to carry on economic warfare. He had tkp Preesion that on all fronts, whether it was empire preferences, ot N,or and banking questions, there was a strong body th °11 in England for a closed empire system, and if that were true 1144"11111 l'eal danger in the proposed plan because it would tie Our alld leave England katio free• He was dedicated to the theory of 41 cooperation but would like to know what the terms were going t be alid his recent experience abroad had made him skeptical about 906 6/6/44 —22141401 i ntentions. He was of the opinion that the British were realis— that they felt that a world order was premature, and that they 41°11141)14 their faith in the British Empire. He was afraid that while Ile were talking about a world order and economic cooperation they were PreParing to use anything to insure their own prosperity, and for that reascn he felt We should 411tIshotad g0 very slowly on the plan for the monetary fund do a little more effective bargaining. He would prefer to let N4rIclhave the necessary credits without complications and without 641etit7 ing an arrangement under which the British could carry on economic : 11 ttate and leave us "holding the bag" under a plan for which we would be resP3nsible and which they might use with impunity. He suggested we ah°uld sit around the table and see what England was thinking 415°14 before we committed ourselves to something that was irrevocable. that 14r- Davis inquired what Mr. Grady meant by his statement that the 1)1411w°111c1 tie our hands and leave England free. h 4440 it mind His response was that the blIrden for our being held responsible for the success of the plan and developing postwar trade being thrown on this country. He cl1 / 4 riot object , o t pressure being put on us to lower our tariffs but he Nett that the plan would go beyond that and make our responsibility beater for carrying the whole program. He feared that acceptance of the 1"leri 8 44 it irrevoca.ble in the sense that having accepted it we would have to through. 4r. Davis suggested that Mr. Grady's arguments would apply in a 1:441' 4 waY to any approach to monetary stabilization since this 907 6/6/44 —23— eQ11 that would have to assume responsibility. Mr. Grady's reply was was not opposed to assuming responsibility and that he favored international institutions but he did not want us to be "taken in" °n it. He felt that, while under the plan England could not have bilateral agreements, they could use quotas, subsidies, etc., for the PlIrpose of creating preferences, and that therefore the whole thille should be looked at carefully before committing ourselves. He 441 he ' saw a good deal on his recent trip, that it had been recog— kzedthat England was looking out for her interests, and that he felt thiScotutry would have to do likewise. Re ference was made in the discussion to statements in the London as to what would be desirable British policy after the war, arki that Gardner said that the statements questioned whether the credits Would be made available by the fund would be more valuable than an SyStem of trade and suggested that England might get more Irk bilaterial agreement5. Mr. Grady said that we should not make 841e0inmitment8 until that was decided and that the decision should be Of a common set—up. Ur. the tact '111(1 that Alfred H. Williams said that the System was confronted with that discussions had been going on for a considerable period within 10 days a drafting committee would meet to prepare an 4eetida. tor the k international conference which would convene in less than 44. Re also said that, while there had been no disposition on the ' l4't Of the T reasurY to have the heads of the interested Government agencies 908 6/6144 —244eet 'it would be undesirable from the standpoint of the negotiations to lith row a.monkey wrench into the machinery". He suggested that when Corese 8 considered the enabling legislation it could define clearly hc4 th e Plan Was to be interpreted so that the position of the United hetes could not be misinter preted by England or anyone else. Mr. Ransom said that if the System were to have a voice in traming the document that would go to the Congress it should promptly its views to the American delegation; otherwise it should with— hold its Views now and state them to Congress when it undertook con— eideration of the matter. He said that was an important question of .P°1iY for the System to determine, and he felt that since Chairman 4e1e8 had accepted membership on the American delegation there was a 441 Ulent of some sort to go along with the present plan. Therefore, he Nt that he would like to do what he could to perfect the plan. He (1-tcl not think the Treasury would be willing to postpone consideration °t it at this time and, if the System should say that it was not willing gO along, it would have to stand on the sidelines until the matter ka Presented. to Congress and make an issue there. He did not know Iftlether that would be possible in view of the fact that Chairman Eccles 4ceePted membership on the American delegation. alcKee said that the discussions had been carried on at the level ') with the Secretar y of the Treasury making it clear that re 11 ° eammitmnts at the policy level, and that if the System 1444 ell ee8tions regarding the present plan there was a question whether, 999 6/6/4 -25- tr the suggestions were adopted, the System would be regarded as having aPProved the plan. Szymczak pointed out that the Plan but - was faced with the fact that the the co Ili nce which would be attended by his feeling that regardless of the these System did not initiate the Treasury was going ahead with representatives of the System. System's views on the plan l'ePre sentatives should go to the conference with some idea of the attitude of the System toward the plan and, because of the interest of the SMem tr°111the in the whole matter, should be prepared to make suggestions Systemts point of view. 141% John H. Williams inquired whether, in view of the way in Whtch the Plan had developed, Chairman Eccles could attend the conferthee all(13 When matter of System interest arose, express himself on such 4att era With the understanding that judgment was reserved on the wisdom 't the Whole plan. If that were done, he said, Chairman Eccles could 'tate h, kr, OpiniOn SzYkezak 4())v of the plan when the matter came before Congress. stated that he did not know whether that procedure would be possible. ittr. Brown stated that his attitude had been that before he could 4e41)t membership on the American delegation he would have to go along With the P1411 regardless of whether or not he liked the details, and that 4a qter member Of the delegation he could try to get his views accepted, leh he would support whatever plan was adopted. He thoughtChair-vs would be in the same position. 910 6/6/44 —26— Mr. Goldenweiser stated that the unbalanced condition brought 41)° "y the war called for a whole series of measures, that what they Its3iact be would not be decided today or at the international conference, that what was before the System was one plan which, while we kit like it, on the whole was one of a series of helpful instruments th''t 'Imad be used. He felt that the System could be of the greatest 4Vice. in trying to improve the plan and to make it more effective. He dtti 11°t think the System would be "sold down the river" by the plan but l'ther that the United States would have very considerable powers under 1it would not have without it. 11(11111ave to The amount that this country contribute to the plan would be a small amount compara— : 4e4 and would not be larger than it would have to contribute in other "ah if it did not accept the plan. He felt that if the British had : 1411 re'' x P01icie5 contrary to this country's interpretation of the 't°13°8ed Plan there should be a clear understanding as to that this coun— teeladle expected to do, and that we should take the plan and ettNtheh it anof th44 pilrsue a from international and American point of view rather polic3r not entering into any plan until it was perfected. 4 Wa °f the Opinion that by the latter course the interests of the 4:4edStates, as well as of the Federal Reserve System, would be sacri— f-4c1 and would reslat in our faciN: a much more difficult situation than °the e At °Irlta • Szymczak's sug4,estion, Mr. Gardner discussed the following *Itch were of particular interest to the Federal Reserve System hi eh decisions had not yet been reached: 911 6/6/44 -271. The need for a Federal Reserve voice in the management of the fund; 2. The contrib'Ition of the United States to the fund; 3. Whether as a means of discouraging long-term use of the frici there should be an interest charge on credits runfor loss than a year with progressively higher rates i_ 1 0nd one year and perhaps also on larger amounts, it 7 _!lne Suggested that credits for loner than a year bilould be only with the express approval of the fund; and 4. The power that the Reserve System should have to offset ,xcess reserves resulting from the operations of the vsund, including the power to require that official valances in this country be deposited in the Federal Reserve Banks. 7 It was recognized that some of those points were matters that I/kid riot come up at the international conference, but it was felt that tleeisio ns Should be made with respect to them for the guidance of the 4etezis representatives at the conference. A tIc)48 clear-cut consensus was not expressed on all of these clues- Ro • er, it was sugtested that it would be helpful to the Federal }14erVe SYstem if it were understood that it would have a voice in the et -on 4l of the American director of the fund and if he could be refp gli reci t° Illake reports to, and confer with, the Chairman of the Board Gold'errlors in of State. addition to the Secretary of the Treasury and the Secre- thlt °li the second point, Mr. Gardner stated that there was evidence b14,1* Treasury contemplated that the funds for the American cOntriw °lad be raised in some "costless" manner which had not yet been ok °Ilt- There was agreement that a suggestion that had been made 912 6A/44 -28qone time that the gold contribution to the fund might also be counted 1181)411 'of the legal monetary reserves of a member country should not ltIPI)r°ved, and that the contribution of this country should consist Or Pr11 in the stabilization fund and funds provided through budgetary Procedure. While there was a difference of opinion as to whether an rest charge would be appropriate on resources of the fund used by kraembe to. halre ccsuntrY, there was general agreement that it would be desirable 4 Charge o which would discourage the use of the fund as a means -4.11g long-term credits or credits for other than currency stabilization. On etateze the fourth point, there was agreement that a more specific nt should be included in the draft of the plan which (1) would ,a c ountry 1141 to prevent speculative movements of funds even though c d gold movements, (2) would state that it would not be contrary t"hertInd ProFram to adopt legislation that would discourage capital : ht l' 111 elli ng a member country, and (3) could require that foreign 4a"ces be ktittrerenceheld in the central bank of the member country. There was of opinion whether the Board should tie its position on the ktid t0 4 request for additional authority to offset the effect of the : t°1) q1(3/18 of the fund on the credit situation in this country or whether h P'blein should be dealt with later. In re sponse to a request from Mr. hansom for any comments that 101t have it the to make, Mr. Bopp stated that he was impressed by the fact monetary fund had been in effect during the 301 s, every 913 6/6/4 -29cIll'rencY devaluation that took place during that period probably would he'le taken place anyway because the fund could not have refused any c°1111t17 the that the right to devalue when it did. However, he did not think meant that the fund would be entirely useless. He suggested that fund should have power on its own initiative to recommend changes 111 eZehange rates or other appropriate monetary policies and not have the initiative come in each case from the member country. He thought it hilid have been the function of the fund in the 30's when the devalu41()rie OCcUrred to look over the whole international picture and suggest C4411g88 in all countries, which would have.eliminated the competitive ch 41108 that took place. He also said that if a country did not want to eo iorlg el''eation kt,&oriaa °11 a Particular policy it would not do so, that the important was whether or not the world would determine to have intercooPeration, and that if the decision were in the negative no P1'.4 wolad work. If they did agree to cooperate, then the proposed 144 afforded an opportunity for orderly cooperation and development and )14 better than the earlier plans because it would permit of greater Iftle)4ilitY t5rtillle 1141' and in exchange rates. He thought it would be very difficult not M istakes in the initial exchange rates established following the that for that reason chances in the rates should be expected. It be a m istake, he said, to say that, if the plan were adopted, exchange i‘te6 Ifolad 'kt be be stable or by silence to create the idea that this country res ponsible for everything that happened if the plan wenaput ef fect. 914 6/6/44 -30At Mr. Szymczakts suggestion, it was understood that the repre41117 "of the Federal Reserve Banks present would submit to the }306. "Promptly as possible any suggestions that they might have to 4141c° h respect to the list submitted by Hr. Goldenweiser earlier in thetie . eting of points which must be settled at the international Con— or which might be discussed, and that the Federal Reserve Banks )4)1114 b ° asked to let the Board have their comments on the preliminary 111.N. -v 011+1. ".°..ns of the proposal for a bank for reconstruction and develop— 4tnt Thereupon the meeting adjourned. Secretary. Vice Chairman.
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