Full text of Review (Federal Reserve Bank of St. Louis) : February 1969

View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

FEDERAL RESERVE BAN K
FEBRUARY 1969
O F ST. L O U IS

Stab ilization Policy and In f la t io n ........ 2
O peration s o f the Federal Reserve Bank
o f St. Louis — 1968 .......................... 7
International M o n e ta ry Reform
and the "C r a w lin g P e g " .................15

Vol. 51, No. 2

Stabilization Policy and Inflation
I H E P R O JE C T E D C O U RSE of economic activity
for this year is discussed in the 1969 Econom ic Report
of the President, which was presented to Congress
on January 16. The appended report of the outgoing
Council of Economic Advisers projected total spend
ing in the fourth quarter of 1969 to be 6 per cent
above fourth quarter 1968. Though their estimate is
labeled a forecast, it may be considered, more
appropriately, a target or plan in the spirit of the
Employment Act of 1946. To achieve this 6 per cent
target growth in total demand, the outgoing Adminis
tration proposed a budget consisting of a 5.5 per cent
increase in Federal spending in the year ending fourth
quarter 1969, and continuation of the 10 per cent tax
surcharge to mid-1970.1 Enactm ent of these proposals,
in conjunction with the Council’s projections of eco
nomic activity, would yield a small surplus in the
Federal budget for calendar 1969. No specific
recommendations were offered for the course of
monetary actions, other than that such actions should
be “appropriate.”
Projections of total spending are supplemented
by estimates of growth in real product and of the
advance in the price level. The Council’s report
demonstrates clearly the necessity for slowing the
growth of total spending as a means of reducing
inflationary pressures. According to the Council,
reduction in the growth of total spending from 9.5
per cent in the year ending fourth quarter 1968 to 6
per cent in the same period in 1969 would probably
be manifested in about 3 per cent growth in real
product and about 3 per cent increase in prices. Real
product advanced 5.5 per cent from fourth quarter
1967 to fourth quarter 1968, while prices rose 3.9 per
cent.

R ecent Econom ic Developments:
Background for Forthcom ing Policy
The rate of growth of total spending slowed only
slightly in the fourth quarter, continuing far in excess
of growth in the economy’s productive potential.
XA11 references to the government budget projections for 1969
are on a seasonally adjusted national income accounts basis.
Page 2

As a result, upward pressure on prices persisted and
prices rose at a 4 per cent annual rate in the fourth
quarter, the same as in the previous year. By com
parison, prices increased at a 2.5 per cent average
rate from 1964 to 1967 and 1.3 per cent annually
from 1961 to 1964.
Both monetary and fiscal actions provided sub
stantial stimulus to total spending in the year ending
last June. The pace of economic activity, through
December, continued to reflect these expansionary
D e m a n d a n d P ro d u c t io n
Ratio Sc ale
B illion s of D o lla rs

R a t i o S c a le
B i l l i....o n s o f D o la rs

Q u a rte rly Totals a t Annu alR ates
S e aso na lly A d ju s te d

87.8

850

---------------

800

+7 4 % ~ f

750

___ 19.1

700

Total S p e n d

+497.

650
'

650

I___ _
067.
+387.

.____ _

600

0 ^ + 8 17.

550

teal Pro d u c t

550
2

+547.

500

500
4th < tr.
♦

i fqfr.
*

450
1960

1961

1962

1963

1964

1965

1 tqlr.
*

1966

O’
$ 2nd qlr.
♦
t

1967

4th qi r♦

1968

S o u fc « ! U S D « P °rtm e n t o f Commerce
l i GNP in curren t d o lla r ..
12 GNP in 1958 d o llars.
Percentages are an n u a l rates o f change between periods indicated.T hey are presented to a id in
com paring most recent developm ents w ith pa st "trends."
.a te s t d a ta p lo tte d : 4th quarte r prelim inary

policy developments. After mid-year, the Federal
budget deficit declined as tax receipts increased and
the growth of Federal spending slowed. However,
the rate of monetary expansion continued well above
the growth rate of productive potential and velocity
of money continued to rise.

Fiscal Actions
Federal budget actions have been less stimulative
since mid-year; revenues have increased very rapidly
since July, while expenditure growth has slowed. The
moderation of expenditure growth reflects the re
straints included in the Revenue and Expenditure
Control Act of 1968. Growth of revenues reflects the
combined effects of the tax surcharge provision of
the Act and large advances in nominal incomes.

F E D E R A L R E S E R V E B A NK OF ST. LO UIS

F EB R UARY ,

Income Velocity of M o n e y
G N P / M o n e y Stock

A n n u a l Rates
o f T urnover

A n n u a l Rates
of T urnover

1969

feet on total demand of the movement from a budget
deficit to a surplus is contingent on the rate of mone
tary expansion.

Monetary Actions
Monetary aggregates have continued to grow
rapidly since June. The money stock has grown at
a 5.2 per cent annual rate in the past six months,
less rapidly than the 8 per cent rate of increase in
the previous six months. However, in the most recent
three months, money has increased at an 8 .6 per cent
rate. In comparison money grew at a 4.1 per cent
trend rate from 1964 to 1967 and a 2.6 per cent rate
from 1960 to 1964.

4 63

] ~

n -

n ~

1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970
A n n u a l ra te s o f t u rn o v e r c o m p u te d w ith q u a r te r ly G N P (c u rre n t d o lla r s ) a t s e a s o n a lly a d ju s te d
a n n u a l r a te s , a n d s e a s o n a lly a d ju s te d m o n th ly a v e r a g e s o f d a ily m o n e y sto c k .

200
L a te st d a ta p lo tte d : 4 th q u a r te r 19 68 p r e lim in a ry

M o n e y Stock

,--

Ratio Sc a l e
Bil lions of D o l l a r s

Ratio Sc al e
Billions of D o ll a rs

M o n th ly A verages o f D a ily F igur
S e aso na lly A djusted

--------------- 9 Q 0

The high-employment budget, a measure of fiscal
influence, shifted from a $14.5 billion annual rate of
deficit in the first half of calendar 1968 to a slight
deficit in the second half. W hile all measures of fiscal
actions indicate that the expansionary influence of
the Federal budget has been reduced substantially,
total spending in the economy has continued to ex
pand at a rapid rate.
Fiscal restraint is expected to intensify in the first
half of calendar 1969, and moderate slightly in the
second half.
The high-employment budget is
scheduled to move to a $5.6 billion annual rate of
surplus in the first half, and a $4.0 billion rate of
surplus in the second half. The government’s budget
proposes expenditure increases of 5.5 per cent in the
year ending fourth quarter 1969, and continuation
of the 10 per cent surcharge for all of 1969. The efF e d e r a l B u d g e t In flu e n c e *
S tim u lu s or Re straint
Q u a r te r ly T o t a ls a t A n n u a l R ate s

M illions o f D o l l a r s

S e a s o n a lly A d ju s te d

B i 11 i O n

S O

f D O 11 a r S

2 0 1------------------------------------------------------------------------------------ ------

S>^ \ (

IMULU s

RE S TR AIt

10
/*\
0.6 J

irt
i

-10

-20

-10

■20

1957 1958 19591960 1961 1962 1963 1964 1965 19661967 1968 1969
•T h e H ig h -E m p lo y m e n t B u d g e t, f i r s t p u b lis h e d b y th e C o u n c il o f E c o n o m ic A d v is e rs .
S o u rc e : F e d e r a l R e s e rv e B a n k o f St. L o uis
L a te s t d a ta p lo tte d : 4 th q u a r te r 1968 p r e lim in a ry ; 1969 e s tim a te d b y th is b a n k

June'64

1960

1961

1962

1963

1964

Apr.'65

1965

Apr.'66 Jon.'67

1_L

1966

1967

1968

Percentages ore annual rotes o f change betw een periods indicated. They are presented to aid in
com paring m ostrecentdevelopm entsw ith p a s ftr e n d s ."
la te s td a ta p lo tte d : Decem ber p re lim in a ry

The monetary base, which largely determines the
trend growth of money, has risen at an 8.1 per cent
rate during the last six months, greater than the 5
per cent increase in the previous six months. Over
the past year, the monetary base has increased
more steadily than either the money stock or bank
credit. Fluctuations in the money stock and bank
credit during short periods are caused by many
factors, including changes in the growth rate of time
deposits as market interest rates change relative to
the ceiling rates that banks can pay on time deposits,
and, in the case of money, by abnormal shifts in
Treasury deposits.
Bank credit has expanded at a 14 per cent rate in
the past six months and 11 per cent in the past year.
Total loans at commercial banks have risen at a 15
per cent annual rate in the past six months and 12
per cent in the past year.
Page 3

F EB RU A R Y,

F E D E R A L R E S E R V E B A NK OF ST. LO UIS

M o n e ta ry B a se *
Ratio Sc a l e

Ratio Sc al e

Dec _68
Af

1960

1961

1962

1963

1964

1965

1966

1967

•Uses of the monetary base a re member bank reserves and currency held by the pu b lic and non n
banks. Adjustm ents are made (or reserve requirem ent changes and shifts in deposits am ong cl
o f bonks. Data are computed by this bonk.
Percentages arean nu al rates o f change between periods indicated. They are presen ted to aid in
com paring m ostrecentdevelopm ents with past "tre nd s."
la te s t da ta p lo tte d : December prelim inary

1969

Similar quarter-to-quarter slowdowns in final sales
have frequently taken place in the inflationary period
since 1964, however, so that the fourth quarter slow
down in growth of final sales is not necessarily
indicative of a change in trend. For example, final
sales slowed from first to second quarter 1968, only
to resume a rapid advance in the third quarter.
Real product rose at a 3.9 per cent annual rate in
the fourth quarter, slower than in the previous three
quarters but at about the same rate as in the previous
two years. A slowdown in real product growth may
not indicate a moderation of inflationary pressure,
but may reflect the restraints of labor force growth
and of limited advances in productivity. In an eco
nomy operating at essentially full employment, an
increase in total demand is manifested by more rapid
P ric e s
Ratio Sc a le

Ratio Sc ale

Total Spending, Final Sales and Production
Despite the movement of the Federal budget
toward surplus, total public and private spending has
continued to advance rapidly as rapid monetary ex
pansion has continued unabated in the last half of
1968 and in early 1969. Total spending increased at
a 7.9 per cent annual rate from the third to the
fourth quarter, slightly slower than earlier in the year,
but about the same as the 8.1 per cent average rate
from mid-1965 to late 1968. The composition of total
spending changed from the third to the fourth quarter
as the advance in final sales moderated and the rate
of inventory accumulation increased. Final sales
grew at a 6 .8 per cent rate from the third quarter,
compared with an 8 per cent average rate since 1964.
F in a l Sa le s
T o t a l S p e n d in g Less C h a n g e s in B u s in e s s In v e n to rie s
Ratio Sc al e
Billions of Dolla rs

Quarterly Totals at Annual Rates
Seasonally Adjusted

Ratio Scale
Billions of Dollars

S o u rc e : U .S . D e p a r tm e n t o f L a b o r
Percentages are an nu al rates o f change between p eriods indicated. They are pre sen ted to a id in
com paring most recentdevelopm ents w ith p a st "tre n d s ."
Latest d a ta p lo tte d : December

increases in prices than otherwise. Total or final
demand, not real product, reflects the overall influence
of monetary and fiscal actions.
Industrial production has risen 5 per cent from
late 1967, about the same growth rate as from 1965
to 1967, but less than the 7 per cent rate from 1961 to
1965. Recent growth in industrial output has been
less than in the 1961 to 1965 period, probably because
of high levels of resource utilization. At these high
levels, productivity gains tend to decline as less effi
cient labor and equipment are utilized.

Prices and Employment
Source: U.S. Deportment of Commerce
Percentages ore annual rates of chonge between periods indicated. They are presented to aid in
comparing mostrecentdevelopments with past "trends.’
Latest do ta plotted: 4th quarter prelim inary

Page 4

Prices began to accelerate in late 1965 in response
to the pressures of excessive demand relative to
productive capacity. The annual rate of increase of
prices has been at about 4 per cent since mid-1967.

F E D E R A L R E S E R V E B A NK OF ST. L O UIS

up from a 3 per cent rate from late 1965 to mid-1967,
and from a 1.5 per cent average rate in the 1961 to
1965 period.

F EB RUAR Y .

Ratio S c a le

Y ie ld s o n G o v e r n m e n t Se cu ritie s

1969

Ratio Seale

Wholesale prices of industrial commodities rose at
a 2.7 per cent rate from late 1967 to late 1968 and at
a 1.7 per cent rate from 1964 to 1967, after being
essentially unchanged from 1961 to 1964. Consumer
prices increased 4.7 per cent from late 1967 to late
1968, at a 2.9 per cent average rate from 1965 to 1967,
and at a 1.3 per cent rate from 1961 to 1965.
The acceleration of price increases and total
demand growth have been associated with a rising
rate of employment of the labor force. In January
1965, when unemployment was 4.8 per cent of the
labor force, the Council of Economic Advisers stated
that employment of 96 per cent of the labor force
should be an interim target for stabilization actions.
That target level was achieved in early 1966, while
inflationary pressures intensified. Since then, employ
ment has exceeded that level in all but two months,
reaching an extremely high 96.7 per cent of the labor
force in November and Decem ber of 1968. The ac
celeration of the rate of price increase which began
at the end of 1965 has continued almost without
interruption.

Interest Rates
Intensification of inflationary pressures has also
affected prices for the use of loan funds. As increas
ing prices for the use of borrowed funds and for goods
and services come to be anticipated, the public in
creases current purchases and borrowing in an effort
to avoid higher prices and interest rates in the future.
In this manner, anticipated inflation gives rise to
additional demand pressures, and prices and interest
rates rise further. Because of the expectation of
higher prices, borrowers are willing to pay higher
interest rates than otherwise. Holders of assets direct
their holdings away from the loanable funds markets
and into equities and real assets, unless they can ob
tain a return from loans sufficient to compensate
them for the anticipated inflation.
Market interest rates, in response to both supply
and demand forces, have risen on balance since last
September. This increase was especially rapid in late
November and early Decem ber. Yields on long term
securities have followed the trends of prices of goods
and services. Long-term Treasury bond yields aver
aged 4 per cent in the 1960 to 1965 period, 4.8 per
cent from 1966 to 1967 and 5.3 per cent in 1968.
The Federal Reserve discount rate and the rate
charged to prime borrowers by commercial banks

were raised as lagged responses or adjustments to
market rate developments. On Decem ber 3 the prime
rate was raised from 6 V4 per cent, which it had been
since September, to 6 V2 per cent. The Federal Reserve
discount rate was increased from 5% per cent to 5%
per cent on Decem ber 18 in response to the increased
market rates. On Decem ber 19, the prime rate was
raised again to 6 % per cent, and on January 7 to 7
per cent. This is the highest level of the prime rate
since it was first defined in 1929. W ith prices cur
rently rising at a 4 per cent rate, the 7 per cent
prime rate may be no higher, in real terms, than the
4 V2 per cent prime rate prevailing in the early Sixties
when prices were rising at about a IV2 per cent rate.
Regulation Q of the Federal Reserve System and
similar regulations by the Federal Home Loan Bank
Board limit interest rates paid on deposits and sav
ings and loan shares. However, there is no reason to
suppose that these restrictions keep the general level
of market interest rates lower than it otherwise would
be. Since the restrictions may limit the total supply
of loan funds, the average level of interest rates paid
by borrowers of loan funds is, in response to supply
and demand forces, probably higher than it would
be in the absence of the controls.

Stabilization Policy and the
Econom ic Outlook for 1969
There is widespread agreement that inflation is the
nation’s chief economic problem in 1969. It is also
agreed that inflationary pressures can be reduced by
slowing the growth of total spending. Such a slowing
requires a policy of monetary and fiscal restraint.
Page 5

F E D E R A L R E S E R V E B A NK OF ST

F EB RU AR Y,

LO UIS

Despite universal acceptance of the
need to reduce the rate of growth of total
spending, there is a question of how such
a reduction will affect real product and
prices. The outgoing Council has judged
that a 6 per cent growth in total demand
from fourth quarter 1968 to fourth quarter
1969 will be accompanied by about 3 per
cent growth in real product and about
3 per cent advance in prices. Such a
judgment requires further examination.

Demand, Production and Prices
A n n u a l Rates o f C h a n g e
Total
Dem and

Period

Real
Product

1/58

3 .7

1/5 8

to IV / 5 9

1.6

IV / 5 9

1/57

7 .3

4 .5

IV / 5 5

1 / 5 7 to

11/58

— 2 .5

11/58 to

1 /60

8.2

6 .4

1/61

— 1.5

1/66

1 0 .2

1 / 6 0 to
IV / 6 4

Prices

Period

11/54 to

to IV / 6 0

1.9

IV / 6 0 to IV / 61

1.1

8.1

IV / 6 5

to IV / 6 6

3 .3

11/67

2.5
3.9

11/67

5 .7

2.5

IV / 6 6

11/67 to I V / 68

9 .0

4 .9

11/67 to IV / 6 8

1 / 6 6 to

Stabilization Actions and
Total Demand
The outgoing Council has suggested a 6 per cent
growth in total demand as an optimum target for
stabilization actions in 1969. This goal for GNP
growth was presented in conjunction with a budget
that projects a continuation of the less expansionary
fiscal stance implemented in mid-1968. W hether such
a goal will be achieved depends on the ultimate fiscal
program that is adopted by Congress and the new
Administration, and the forthcoming rate of mone
tary expansion. Rapid monetary expansion apparently
has continued up to the present, and, due to the
lagged effect of monetary actions, rapid growth of
total spending might be expected well into 1969.
The rate of monetary expansion in recent years
seems to have been influenced to a considerable
degree by changes in the amount of outstanding
Federal debt. Since late 1966, large Federal deficits
have prompted rapid increases in bank reserves to
facilitate absorption of new issues of Government
securities, without much immediate increase in in
terest rates. W ith the Federal budget now near bal
ance and scheduled to move into surplus, monetary
authorities may be better able to combine the pro
gram of fiscal restraint with restriction of the rate of
growth of monetary aggregates, such as Federal R e
serve credit, total bank reserves, the monetary base
and the money supply.

Real Product and Prices
An evaluation of the Council’s 1969 projections for
real product growth and prices can be facilitated by
examining past periods when the growth of total
spending decelerated. As the table indicates, on three
occasions since 1954 there was a marked and sus
tained decline in the rate of increase of total spend
ing: first quarter 1957 to second quarter 1958, first
quarter 1960 to first quarter 1961, and first quarter
Page 6

1969

1966 to second quarter 1967. On each of these oc
casions, a slowdown in total spending growth was
accompanied by a simultaneous deceleration of real
product. The effect on prices, however, has tended
to lag the deceleration of total spending by three or
four quarters.
Growth in total spending slowed in the period
beginning second quarter of 1957 from a 7.3 per cent
rate to a 0.3 per cent rate. Real product decelerated
at the same time while price increases did not slow
until about a year later. W hen total spending de
celerated beginning second quarter 1960 from an 8.2
per cent rate to a 0.1 per cent rate, real product
decelerated simultaneously. Price increases did not
decelerate until three quarters later. Total spending
slowed beginning second quarter 1966 from a 10.2
per cent rate to a 5.7 per cent rate, and real product
growth declined simultaneously. Prices first ac
celerated, then decelerated three quarters later.
This experience, though limited, suggests that a
deceleration of growth in total spending in 1969 prob
ably would be accompanied by a simultaneous decel
eration of real product. However, a slowdown in the
rate of price increase might be expected to be de
layed by three quarters or a year.

Summary
Inflation is a problem that will take time to over
come. On the basis of past experience, it is doubtful
that the Council’s proposed economic program will
be successful in reducing the rate of price increase to
3 per cent for the year ending fourth quarter 1969.
Monetary expansion continues rapid, implying con
tinued fast growth in total spending unless the rate of
monetary expansion is moderated. W ith inflationary
expectations apparently entrenched in the economy, it
is more likely that significant price effects of a reduc
tion in spending growth, once it occurs, would not
appear until as much as a year later.

Operations of the Federal Reserve Bank
of St. Louis-1968
T
h e f e d e r a l r e s e r v e b a n k o f s t . l o u is
is part of the Federal Reserve System, which in
cludes the Board of Governors in Washington, D.C.,
the 12 Federal Reserve Banks, and their 24 branches.
The Eighth Federal Reserve District includes all of
Arkansas and portions of Illinois, Indiana, Kentucky,
Mississippi, Missouri, and Tennessee. In addition to
the head office, branch offices are located in Little
Rock, Louisville, and Memphis.
The operations of the Federal Reserve Bank of St.
Louis and its branches fall principally within three
functional areas: participation in the formulation and
administration of monetary policy; supervision of cer
tain commercial banks; and provision of a variety of
services for the public, the United States Government,
and commercial banks. These areas are closely inter
related, and specific activities of the Bank may serve
more than one function. For example, member bank
borrowing from the Federal Reserve is one of the
privileges of membership, and extension of such
credit involves some aspects of supervision, while es
tablishment of the discount rate is a part of monetary
policy formulation.

Reserve Banks through advances and discounts. Ad
vances are the usual form of credit to member banks,
and the only form of credit to others. Nevertheless, a
custom has developed of referring to Reserve Bank
lending as discounting, and the interest charge appli
cable to such lending as the discount rate. The
discount rate is established by directors of each of
the twelve Reserve Banks, subject to review and
determination by the Board of Governors. The rate
was adjusted four times during 1968. It was increased
from 4Y2 to 5 per cent in March and to 5% per cent
in April. The discount rate was then reduced to 5Vi
per cent in August, but restored to 5Vi per cent in
Decem ber.1

Lending and the Discount Rate
Member banks and, under certain circumstances,
others may receive credit assistance from Federal

serve Bank of St. Louis during 1968 rose sharply
1967 levels but remained substantially below the
of 1966. Average credit outstanding to Eighth
trict member banks was $17 million, compared
$6 million in 1967 and $32 million in 1966.

from
level
Dis
with

A Federal Reserve System Committee has made
a number of proposals for the redesign of the discount
1Under present law, when a member bank borrows from its
Reserve Bank on collateral other than U.S. Government
obligations or limited types of paper that meet certain “eligi
bility” requirements, it must pay interest at a rate one-half
of 1 per cent higher than the Reserve Bank’s normal dis
count rate. The Board of Governors has recommended legis
lation that would permit a member bank, in appropriate
circumstances, to borrow on any collateral satisfactory to its
Reserve Bank without the necessity of paying a “penalty”
rate of one-half of 1 per cent.
Page 7

F EB RU AR Y.

F E D E R A L R E S E R V E B A NK OF ST. LO UIS

mechanism.2 The chief objective of the proposals is
to stimulate use of the discount window for the pur
pose of facilitating short-term adjustments in bank
reserve positions. According to the Committee report,
a more liberal and convenient mechanism should
enable individual member banks to adjust to changes
in fund availability in a more orderly fashion and, in
so doing, lessen some of the causes of instability in
financial markets without hampering overall mone
tary management.
Two major and interrelated changes included are:
(1) more objective definitions of terms and conditions
for discounting; and (2) inclusion of several com
plementary arrangements for borrowing, each de
signed to provide credit for a specific need. As a
result of these changes the Federal Reserve System
anticipates a generally higher level of borrowing by
member banks. However, a higher level of borrow
ing does not necessarily imply a corresponding
increase in total reserves, since increased borrowing
can be offset by smaller System holdings of securities.
The first of these changes would be accomplished
by introducing specific quantity and frequency limi
tations on certain types of borrowing by member
banks, and by increasing reliance on the discount
window through consistently maintaining the discount
rate at levels reasonably close to rates on alternative
instruments of reserve adjustment. These proposals
are designed to permit a clearer and more unequi
vocal communication of discounting standards and
limitations to member banks, and to help insure
uniformity of window operation among districts and
among banks.
The proposed redesign contains varied arrange
ments by which the Federal Reserve would provide
short-term adjustment credit, seasonal credit, and
emergency credit. Short-term adjustment credit is
further divided into a “basic borrowing privilege”
and other adjustment credit. The former provides
credit on an automatic basis within specified limits
on amount and duration to all member banks m eet
ing specified conditions; the latter is available, under
administrative control, to meet needs larger in amount
or longer in duration than can be accommodated
under the basic borrowing privilege. Seasonal credit
would be provided to accommodate recurring de
mands as determined by observed seasonal patterns,
for such amounts and duration as the applying mem
ber bank demonstrates a need. Credit would continue
2See “Report of a System Committee,” Reappraisal o f the F e d
eral R eserve Discount M echanism, Board of Governors of the
Federal Reserve System, July 1968.
Page 8

1969

to be provided to member banks in general or isolated
emergency situations and — in its role as lender of last
resort to other sectors of the economy — the Federal
Reserve would stand ready, under extreme conditions,
to provide credit assistance to financial institutions
other than member banks.

Research
Research activities at the Federal Reserve Bank of
St. Louis are directed toward national and regional
business and financial problems. Analyses are con
ducted of both current and longer run basic stabili
zation issues. Also, economic developments in the
Eighth Federal Reserve District are measured and
interpreted. Such analyses are used to assist the
President of the Bank in discharging his responsibili
ties as a participant in the deliberations of the
Federal Open Market Committee, and in formulating
his recommendations to the Bank’s Board of D irec
tors. In addition, the research staff engages in activi
ties to provide economic information to the public.
This is accomplished through publication of this
R ev iew and other recurring releases which are avail
able to the public without charge.

Supervision and Exam ination
The Federal Reserve System is one of the agencies
responsible for supervising commercial banks, with
the objective of fostering and maintaining a sound
banking system.
A major supervisory responsibility is evaluation of
the assets, operations, policies and effectiveness of
management of the banks subject to review. E x
aminations provide the basic information which en
ables each supervisory authority to help prevent or
correct situations that might adversely affect the
economy or the general public interest. Supervision
by the Federal Reserve Bank of St. Louis is exercised
principally through examination of state member
banks. All state member banks in the district were
examined in 1968.
Other supervisory functions of the Federal Reserve
System include admission of state banks to member
ship in the System, approval of the establishment of
branches, approval for merger or absorption of other
banks by state member banks, and granting permis
sion to establish registered bank holding companies
and for such companies to acquire stock in banks.
Much of the investigation involved in these super
visory functions is conducted at the Reserve Banks.
In addition, authority to approve domestic branches of
state member banks and certain other supervisory
functions is delegated to Reserve Banks.

F E B RUAR Y .

F E D E R A L R E S E R V E B A NK OF ST. LO UIS

T a b le

Service Operations

VO LU M E

O P E R A T IO N S 1
Per C ent
C hange

D o lla r A m o u n t
(M illio n s )

C he cks collected2
N o n c a sh collection items
C o in counted

1 9 6 7 -6 8

1968

1967

1 3 5 ,7 3 7 .9

1 2 0 ,8 6 0 .0

5 5 6 .2

5 2 4 .1

6.1

5 8 .2

4 8 .0

2 1 .3

1 2.3

counted

1 ,5 7 7 .5

1 ,5 1 4 . 7

4.1

T ran sfers o f fu nd s

1 6 9 ,1 7 3 .1

1 4 7 , 0 5 7 .5

1 5 .0
— 4.2

C u rre n cy

U. S. S a v in g s

Bonds

h a n d le d 3

O th e r G o ve rn m e n t securities h a n d le d
U. S. G o ve rn m e n t c o u p o n s

p a id

6 0 0 .2

6 2 6 .8

2 0 , 2 5 0 .3

1 6 ,2 3 2 .8

2 4 .7

1 5 7 .2

1 6 6 .9

— 5 .8

Num ber

Checks

collected2

N on cash
C o in

collection

items

counted

C u rre n cy counted
T ra n sfe rs o f fu n d s
G o ve rn m e n t

securities

U. S. G o ve rn m e n t c o u p o n s

(T ho usa nd s)

h a n d le d 3
p a id

1 9 6 7 -6 8

1968

1967
2 8 6 ,0 6 9

8.9

882

868

1.6

5 3 9 ,1 6 2

4 4 5 ,3 5 9

21.1

2 1 9 ,2 9 7

2 1 7 ,3 5 8

0 .9

268

247

8.5

9 ,8 6 4

7 .5

690
724

1Total for the St. Louis office and the L ittle Rock, Louisville and
2Excludes Government checks and money orders.
:iIssued, exchanged, and redeemed.

C h e cks C o lle c te d *
B illio n s

Per C ent
Change

31 1 ,4 1 6

1 0 ,6 0 8

U. S. S a v in g s B o n d s h a n d le d 3
O th e r

1969

B illio n s

Among its service operations,
the four offices of this bank main
tain facilities for the collection
and clearing of checks and other
items, furnish currency for circu
lation, handle the legal reserve
accounts of member banks, and
act as a fiscal agent for the Gov
ernment. Most of these service
operations at the bank’s offices
increased in 1968, reflecting the
growth in economic activity in
the Central Mississippi Valley.3

Collection Items

Federal Reserve Banks par
ticipate
in collecting checks and
1 4 .4
603
provide
a mechanism through
759
— 4 .6
which
commercial
banks settle for
Memphis branches.
the checks collected. These ac
tivities facilitate the use of de
mand deposits by individuals, businesses, and gov
ernments in making payments. The four offices of
this bank receive checks from district member banks,
other Federal Reserve offices, and Government
agencies for collection. In order to increase the speed
of collections, the Reserve Bank in some cases receives
checks directly from member banks of other Federal
Reserve Districts. Checks received are either drawn
on banks in the Eighth District that remit at par,4 parremitting banks in other districts, or the United States
Treasury.
The number of checks collected through the four
offices of the bank rose from 286 million in 1967 to
311 million in 1968, an increase of 8.9 per cent. R e
flecting both the greater number of checks and their
larger average size, dollar volume rose to $136 billion,
12 per cent above a year earlier.
In addition to maintaining facilities for check col
lection, Federal Reserve Banks handle numerous

3For an analysis of economic trends in the region, see the
January 1969 issue of this Review.

'E x c lu d e s G o v e r n m e n t c h e c k s a n d p o s t a l m o n e y o r d e r s .

4A11 checks collected and cleared through the Federal Re
serve Banks must be paid in full by the banks on which
they are drawn, without deduction of a fee or charge, that
is, they must be payable at par. National banks and state
member banks must remit at par as a condition of member
ship. In addition, most state non-member banks agree to
remit at par.
Page 9

F E D E R A L R E S E R V E B A NK OF ST. LO UIS

other, noncash items for collection, such as drafts,
promissory notes, bonds and bond coupons. The num
ber of noncash collection items rose 1.6 per cent from
1967 to 1968 while their dollar value rose 6.1 per cent.

Money Operations
Just as individuals and businesses obtain coin and
currency from commercial banks by withdrawing de
posits, member banks obtain coin and currency by
withdrawals from their accounts at the Reserve Banks.
Nonmember banks may obtain coin and currency
from member banks or directly from Reserve Banks,
with charges made to a designated member bank’s
reserve account. W hen commercial banks receive
an excess of coin and currency from their customers,
it may be deposited in the Federal Reserve Bank,
where it is counted and sorted and the usable money
is redistributed.
Coin handling rose sharply in 1968, continuing the
rapid increases of the previous three years. The
number of pieces counted totaled 539 million, up
from 445 million in 1967 and 227 million in 1964 (a
year of severe coin shortage). The dollar value of
coins handled also has risen sharply, totaling $58 milPage 10

FEB RU AR Y.

1969

FEBRUAR Y .

F E D E R A L R E S E R V E BA NK OF ST. LO UIS

1969

U .S. S a v i n g s B o n d s
Is s u e d , E x c h a n g e d , a n d R e d e e m e d
M illio n s

M illio n s

O t h e r G o v e r n m e n t S e c u r it ie s Is s u e d , S e r v ic e d ,

lion in 1968, compared with $48 million in 1967 and
$25 million in 1964.
A total of 219 million pieces of currency were han
dled in 1968, 1 per cent above the previous year.
The dollar value of currency handled totaled ap
proximately $1.6 billion, an increase of 4.1 per cent
from a year earlier.

Transfers of Funds
W ire transfers of funds are largely movements of
member bank balances between Federal Reserve
Banks. Such transfers result primarily from transac
tions in the Federal funds market, check collection
settlements, and transfers in connection with U.S.
Treasury obligations. The number and dollar value
of such transfers have risen sharply in recent years.
This bank participated in 268 thousand transfers in
1968, 8.5 per cent above the previous year. Dollar
value, totaling $169 billion in 1968, was up 15 per cent.

Fiscal Agency Operations
E ach Federal Reserve Bank acts as depository and
fiscal agent of the United States Government. In this
capacity the Reserve Banks carry the principal check

Page 11

Directors
Chairman of the Board and Federal Reserve Agent
M. P e i r c e . Chairman and Chief Executive Officer
General American Life Insurance Company
S t. Louis, Missouri

F r e d e r ic

Deputy Chairman o f the Board
S m it h D . B ro a d ben t, J r .

Broadbent Hybrid Seed Co.
Cadiz, Kentucky
B ra d fo rd B r e t t , President. The First National Bank of
Mexico, Mexico. Missouri

Jam es P. H i c k o k . Chairman of the Board. First National
Bank in St. Louis. St. Louis, Missouri

S am C ooper , President, HumKo Products Division, National Dairy Products Corporation, Memphis. Tennessee

R oland W . R ichards , Senior Vice President, Laclede
Steel Company, St. Louis, Missouri
S herwood J . S m it h , Industrialist, Evansville, Indiana

Ce c il W . Cu p p , J r ., President, Arkansas Bank and Trust
Company, Hot Springs, Arkansas

M ark T ownsend , Chairman of the Board, Townsend
Lum ber Company, Inc., Stuttgart, Arkansas

L I T T L E ROCK BRAN CH
J a k e H artz , J r ., President, Jacob Hartz Seed Co., Inc..
Stuttgart, Arkansas
L ouis E. H u r l e y , President, The Exchange Bank &
Trust Company, El Dorado, Arkansas
E dward M. P en ic k , President and Chief Executive
Officer, Worthen Bank & Trust Company, Little

A l P ollard , President, Brooks-Pollard Company, Little

Rock, Arkansas
E llis E . S h elto n , President, The First National Bank of

Fayetteville, Fayetteville, Arkansas
W ayne A. S tone , President, Simmons First National
Bank of Pine Bluff, Pine Bluff, Arkansas

Rock, Arkansas

L O U IS V IL L E BRAN CH
G. B e a m , President, Thomas Industries Inc., LouisJ . E. M i l l e r , Executive Vice President, Sellersburg State
ville, Kentucky
Bank, Sellersburg, Indiana
P a u l C h a s e , President, The Bedford National Bank,
R o n a l d E. R e i t m e i e r , President, Catalysts and ChemiBedford, Indiana
cals Inc., Louisville, Kentucky
W m . G. D e a t h e r a g e , President, Planters Bank & Trust
H u g h M . S h w a b , Executive Vice President, First NaCo.. Hopkinsville, Kentucky
tional Bank of Louisville. Louisville, Kentucky
H a r r y M. Y o u n g , J r ., Farmer, Herndon, Kentucky

J ohn

M EM PH IS BRANCH
C. W h itn e y B ro w n , President, S. C. Toof & Company,
Memphis, Tennessee
W il l ia m L . Gil e s , President, Mississippi State University, State College, Mississippi

A lv in H u f f m a n , J r ., President, Huffman Brothers Lumber Company, Blytheville, Arkansas
A lle n M organ, Chairman of the Board, The F irst National Bank of Memphis, Memphis, Tennessee

W ade W . H o l l o w e l l , President, The First National
Bank of Greenville, Greenville, Mississippi

C on T. W e l c h , President, Citizens Bank, Savannah,
Tennessee

Page 12

J. J. W

h it e ,

President, Helena National Bank, Helena,

Arkansas

Member of Federal Advisory Council
J ohn F o x , Chairman of the Board

Mercantile Trust Company National Association
St. Louis, Missouri

Officers
D a r r y l R . F r a n c is , P re s id e n t
D a l e M . L e w i s , F i r s t V ic e P re s id e n t
e ig e l ,

Senior Vice President

otaw a,

Senior Vice President

G eo rg e W . H ir s h m a n ,

H ow ard H . W
J

oseph

H om er J o n es,

L eo n all

Senior Vice President

A nd ersen ,

M a r v in L . B e n n e t t ,

oodrow

il b u r

W . G il m o r e ,

Vice President

J oh n W . M en g es,

Vice President

General Auditor

Vice President

H. Isbell,

S t e p h e n K o p t is ,

Vice President

Vice President,

Vice President

Vice President, General
Counsel and Secretary

F . G a r l a n d R u s s e l l , J r .,

Ger a ld

D un n e,

N orm an

B o w sh er,

G eo rg e

C r is t ,

D e n n is o n ,

Ge ig e r ,

il l is

J. M o r e , Assistant Counsel and
Assistant Secretary

Assistant Vice President
Assistant Vice President

M u eller,

Assistant General Auditor

Assistant Vice President

C . W i l l i a m S c h r a d e r , J r .,
Ch arles

Assistant Vice President

J o h n s,

il l ia m

P a u l Salzm an,

Assistant Vice President

J ohn J. H o fer ,

Assistant Vice President

aley,

K athryn

Assistant C hief Examiner

J o s e p h P . G a r b a r in i ,
J.

R ic h a r d 0 . K

Assistant C hief Examiner

C h a p in ,

E dg ar

Assistant Vice President

L . T e r r y B r it t ,
E arl

Vice President

H aro ld

Assistant Vice President

E.
E.

S ilv a ,

Assistant Vice President

U th o ff,

W ALKER,

Assistant Vice President

C hief Examiner

Assistant Vice President

L I T T L E ROCK BRAN CH
J ohn
M ic h a e l
J o h n K . W ard,

Breen ,

M o r ia r t y ,

Vice President and Manager

Assistant Vice President and Assistant Manager

Assistant Vice President

J ohn

D r u e l in g e r ,

Assistant Vice President

L O U IS V IL L E BRAN CH
D o n a ld
J am es

Louis

A . N elso n ,

H en ry,

C o n ra d ,

Senior Vice President and Manager

Assistant Vice President and Assistant Manager

Assistant Vice President

R o bert

H arlo w ,

Assistant Vice President

M EM PH IS BRAN CH
E u g en e

L eo n a r d ,

B e n ja m in B . M o n aghan ,
P aul

B l a c k , J r .,

Assistant Vice President

Vice President and Manager

Assistant Vice President and Assistant Manager
R uth

B ryant,

Assistant Vice President

Page 13

F E D E R A L R E S E R V E B A NK OF ST. LO UIS

U.S. G o v e rn m e n t Interest C o u p o n s P aid

F EB R UARY .

1969

agent. Although the securities remain at the New York
bank, each Reserve Bank participates in the holdings
and earnings of the System Account.
Net earnings before payments to the United States
Treasury increased to $84 million in 1968, up 31 per
cent from a year earlier. This sharp rise in earnings
was due to larger holdings of loans and securities,
as well as much higher interest rates on these assets,
while expenses increased only moderately. After
dividends to member banks and increases in surplus
to equal paid-in capital, net earnings are set aside
for the U.S. Treasury as interest on Federal Reserve
notes. Such payments totaled $81 million in 1968, up
30 per cent from a year earlier.
T a b le II

C O M P A R A T IV E

STATEM EN T O F

C O N D IT IO N

(T h o u s a n d s o f D o lla rs )
ASSETS
G o ld certificate reserves .

3 5 2 ,9 5 5

4 3 7 ,0 4 1

3 3 ,0 1 0

3 4 ,3 7 9

O th e r c a s h ....................................

2 4 ,5 8 9

3 3 ,5 8 8

770

1,100

1 ,8 6 8 ,8 2 9

1 ,7 6 8 ,4 8 0

U ncollected i t e m s .........................

5 7 3 ,7 6 8

5 0 0 ,5 9 4

O th e r a s s e t s ..............................

9 5 ,4 3 8

7 6 ,2 5 0

T otal A s s e t s ..............................

2 ,9 4 9 ,3 5 9

2 ,8 5 1 ,4 3 2

U. S. G o ve rn m e n t securities .

ing accounts of the Treasury, issue and redeem Gov
ernment securities, administer the Treasury tax and
loan accounts of commercial banks, and perform
other Government financial duties.
The four offices of this bank issued, exchanged or
redeemed 10.6 million United States Savings Bonds
valued at $600 million in 1968. The number of sav
ings bonds handled rose 7.5 per cent from 1967 to
1968, although the dollar value fell 4.2 per cent. Other
Government securities issued, serviced, or retired
totaled 690 thousand, which was 14 per cent above a
year earlier, while dollar value rose 25 per cent to
$20 billion.

Statements
Total assets of the Federal Reserve Bank of St.
Louis were $2.9 billion on Decem ber 31, 1968, an
increase of 3.4 per cent from a year earlier. Most of
the rise in assets was due to increased holdings of
U.S. Government securities, which resulted from the
operations of the System Open Market Account. These
open market operations, which are the major instru
ment of monetary policy, are authorized by the Federal
Open Market Committee and are undertaken at the
Federal Reserve Bank of New York by the Committee’s
Page 14

D ece m be r
31, 1 9 6 7

Fed e ral Reserve notes o f other b a n k s
Discou nts a n d a d v a n c e s .

D ecem ber
31, 1968

L IA B IL IT IE S A N D

C A P IT A L A C C O U N T S

Federal Reserve notes (n e t) .

. 1 ,6 7 6 ,6 4 9

1 ,5 6 9 ,1 8 6

D e p o sits:
M em ber banks —

reserve accounts

7 8 3 ,5 7 0

7 2 6 ,6 8 4

U. S. T re a su rer —

ge n e ra l a ccount

599

7 0 ,7 2 1

O t h e r ....................................
Deferred a v a ila b ilit y ca sh items .
O th e r lia b ilitie s a n d accrued d iv id e n d s
Total ca p ita l accounts
Total L iab ilities a n d
C a p ita l A ccou nts

1 6 ,0 8 6

3 9 ,3 1 2

4 1 4 ,7 6 2

3 9 4 ,3 9 4

1 3 ,6 9 3

1 0 ,4 3 5

4 4 ,0 0 0

4 0 ,7 0 0

2 ,9 4 9 ,3 5 9

2 ,8 5 1 ,4 3 2

T a b le III

C O M P A R A T IV E

P R O F IT A N D

LO SS

ST ATEM EN T

(T h o u s a n d s o f D o lla rs )
1968
Total e a r n i n g s ....................................

. 9 7 ,6 4 9

1967
7 7 ,0 2 4

N e t e x p e n s e s ....................................

. 1 3 ,9 6 2

1 2 ,8 6 8

C urrent net e a r n i n g s ....................

. 8 3 ,6 8 7

6 4 ,1 5 6

N et a d d itio n ( + ) o r d ed u ction s (— ) .

+291

+ 56

. 8 3 ,9 7 8

6 4 ,2 1 2

N et e a r n in g s before p a ym en ts

D istrib ution of N e t E a rn in g s:
D i v i d e n d s ....................................

1 ,2 7 3

1 ,2 0 8

Interest on Fed eral Reserve notes .

. 8 1 ,0 5 5

6 2 ,4 0 2

T ra n sferred to s u r p l u s ....................

1 ,6 5 0

602

. 8 3 ,9 7 8

6 4 ,2 1 2

International Monetary Reform and the
“Crawling Peg”
T h e folloiving is a guest article p rep a red by G eorg e W . M cK enzie, Assistant P rofessor o f E con om ics
at W ashington University in St. Louis. P rofessor M cK enzie receiv ed his Ph.D. fro m th e University of
C aliforn ia at B erk eley in 1967. T h e article is p resen ted w ith th e anticipation that his frain ew ork and
view poin t w ill bring forth u seful com m en t an d discussion on th e international m onetary system . T hese
view s d o not necessarily represen t th ose o f th e F ed era l R eserv e B an k o f St. L ou is or o f th e F ed era l
R eserve System.

I n O R D E R for the world economy to function
smoothly, it is necessary that the international mone
tary system meet three basic tests:1
1. It should provide an environment in which
each participating country can pursue its own
domestic goals, such as full-employment, rea
sonable price stability, economic growth, and
social justice.
2. It should be conducive to stability and growth
in international trade and capital investments.
3. It should operate without the imposition of
direct controls on international transactions,
since these controls reduce the benefits of in
ternational specialization.
Over the past decade, there has been continuous
and growing concern by many economists and Gov
ernment officials that the framework of the Interna
tional Monetary Fund (IM F), as developed at
Bretton Woods in 1944, is unable to meet these three
goals and, hence, should be modified. To most casual
observers, the events of the past two years seem to
support this concern. An air of uncertainty and skep
ticism surrounds the Bretton Woods System, which
has experienced the British devaluation, the increase
in the free market price of gold, the imposition of
restrictions on domestic activity in France and the
United Kingdom, and a proliferation of controls on
international transactions.
'These three goals roughly correspond to the objectives of
economic policy discussed by the Deputies of the Group of
Ten in the Annex to the 1964 Ministerial Statement. These
documents are reprinted in the F ederal R eserve Bulletin,
August 1964, pp. 975-999.

This article proposes that the basic philosophy un
derlying the International Monetary Fund is w ork
a b le, but that to be satisfactorily implemented, certain
reforms in its operation are needed. In particular, a
“crawling peg” exchange rate system should be sub
stituted for the current “adjustable peg” mechanism.
The national representatives who drafted the IM F ’s
Articles of Agreement generally believed that reason
ably stable exchange rates were necessary for the
growth of international transactions. W hile they
hoped that rates could remain pegged for extended
periods of time, they also recognized that some coun
tries might want to adjust their exchange rates if
they were experiencing serious international pay
ments imbalances. Hence, the “adjustable peg” con
cept was created.
In practice, the “peg” has been adjusted only infre
quently by industrial countries and often only as a
last resort.2 Thus an important policy instrument for
dealing with international payments difficulties has
not been utilized. In contrast, under a “crawling peg”
system, exchange rates would vary but only on the
basis of a predetermined formula agreed upon by
the members of the IM F. Such an international
monetary arrangement would have the following
advantages:
1. Exchange rate flexibility would increase the
effectiveness of monetary policy in achieving
domestic goals.
2For a discussion of the reasons for this, see R. S. Sayers,
“Co-operation Between Central Banks,” T he T hree Banks
Review, September 1963.
Page 15

F E D E R A L R E S E R V E BA NK OF ST

2. By spreading exchange rate adjustments over
long periods, the “crawling peg” system would
avoid the periodic exchange crises and un
certainty of the present system.
3. The incentive for countries to impose con
trols on international transactions would be
reduced. Indeed, a prerequisite for the suc
cessful operation of the “crawling peg” is a
reduction in such controls.
Thus the “crawling peg” meets the three basic tests
of a satisfactory international monetary system. B e
fore examining the “crawling peg” in detail, the pres
ent system and the sources of its weakness are
discussed.3

The Bretton W oods System
Because exchange rates are pegged under the
Bretton Woods System, a gap may develop between
the d em a n d for foreign exchange by a country’s citi
zens to purchase goods, services, and financial items
abroad and the su pply of foreign exchange generated
by sales of such items to foreigners. If the country’s
officials consider the imbalance to be tem porary, they
may fill the gap by allowing a net change in their
country’s international reserves, consisting of (a )
gold, (b ) foreign exchange, and ( c ) its position visa-vis the IM F .4 In addition, countries may arrange
to obtain loans from one or more countries.
International reserves exist in order to enable
countries to withstand such temporary payments de
ficits. However, since the deficit country has a lim
ited stock of reserves, its ability to rely on them to
bridge a continuing gap between its international
payments and receipts is also limited. Supplemental
loans from trading partners may be sought but are
usually contingent upon some form of positive
3For a detailed discussion of the pros and cons of fixed and
flexible exchange rates, there are a number of interesting
sources: Fritz Machlup and Burton Malkiel, eds., Interna
tional Monetary Arrangement: T he Problem o f C hoice,
(Princeton: Princeton University Press, 1964), especially
Chapter 4; M.O. Clement, et. al., T heoretical Issues in
International Economics, ( Houghton-Mifflin, 1966), Chapter
6; and the Federal Reserve Board, “A System of Fluc
tuating Exchange Rates: Pro and Con,” State o f the E con
om y and Policies for Full Em ploym ent, Hearings, Joint
Economic Committee, U.S. Congress, Eighty-seventh Con
gress, Second Session.
4Under the provisions of the IMF, a member country is
obliged to deposit with the IMF a quota consisting of 25
per cent gold and the rest its own national currency. A
country’s reserve position at the IMF consists basically of its
gold subscription minus its net drawings plus the IM F’s
net sale of its currency, in addition to any amounts of its
own currency that it has repurchased. This position repre
sents the amount that essentially can be drawn automatically.
Page 16

FEB RU AR Y,

L O UIS

1969

balance-of-payments adjustment. In addition, the sur
plus countries, while initially welcoming reserve ac
cumulation as an indicator of their strength in the
world economy, eventually may want to limit their
build-up and hence will put pressure on the deficit
country to take remedial action.5 Thus countries ex
periencing prolonged deficits under the present sys
tem eventually must undertake severe measures of
adjustment. These usually take the form of either
policies of exchange rate adjustments, aimed at switch
ing spending from foreign to domestic goods, or
policies aimed at reducing aggregate expenditure
and hence spending abroad. Although in extreme
circumstances a deficit country is permitted, under
the IM F Articles of Agreement, to impose controls
on international transactions in order to correct a
deficit, this course generally encounters opposition.

The “Adjustable Peg”
Because changes in exchange rate par values are
discretionary, and their timing and magnitude are
extremely difficult for officials to determine, exchange
rates tend to be altered only as a last resort under
the “adjustable peg” system. As an alternative, in
dustrial countries have developed a complex network
of credit facilities and supplements to existing reserve
assets that enable them to postpone exchange rate
changes in the hope that either the situation will cor
rect itself, or that suitable domestic policies can be
implemented.
Therefore, when they do occur, exchange rate ad
justments are usually relatively large in magnitude,
and concentrate within a short period a large burden
on the import and export sectors of the initiating
country and its trading partners. On the other hand,
failure to undertake such adjustments may be equally
costly. If a country’s payments deficit is due to costs
and prices rising faster at home than abroad, domestic
export- and import-competing industries will find
business dwindling.
The prospect of large periodic exchange rate ad
justments can lead to a considerable loss of confi"Basically, countries hold international reserves for the same
reasons that stores and manufacturers hold inventories. Each
merchant wants to have enough stock on hand to meet his
customers’ demands as quickly as possible. On the other
hand, he does not want to maintain such a large inventory
that a significant portion of his investment is tied up. Simi
larly, a country will want to have enough reserves on hand
in order to meet any balance-of-payments deficits. How
ever, it does not want to build up reserves indefinitely, since
this involves the transfer of real resources to foreigners in
return for less productive assets.

F E D E R A L R E S E R V E B A NK OF ST. LOUIS

dence in the currencies of the countries involved.
Suppose that country X has experienced prolonged
balance-of-payments deficits and the expectation is
that its officials will fail to prevent new deficits. Many
people, speculating that the only way for X to solve
its problems is through devaluation, will convert as
sets denominated in X ’s currency into gold or assets
denominated in some other currency which is ex
pected to maintain its value. In addition, speculators
will sell X ’s currency in the forward exchange market
in the hope of being able to buy it back later at a
lower price.0
These pressures make the price of X ’s currency in
the forward market expensive relative to the spot
price, or current price, and thus make hedging quite
costly. An X importer who must deliver a certain
amount of foreign exchange in the future may dis
cover that the premium he has to pay to buy foreign
exchange in the forward market is prohibitive. How
ever, if X does devalue he then finds that his bill is
higher in terms of his own currency.
This example indicates that considerable uncer
tainty can be generated under the present “adjustable
peg” system. The difficulty lies not in the fact that
exchange rate adjustments are possible, but that they
are postponed so long that even the dullest specula
tor knows that some change must be made. When
an exchange rate adjustment is anticipated, specula
tors are in a position to make large profits with
relatively little risk. In fact, speculative capital move
ments, in anticipation of an exchange rate adjustment,
may actually force a change upon a country which had
no fundamental economic reason for the adjustment.
An alternative to altering exchange rates is a policy
which entails a slower rate of relative price adjust
ment: countries with deficits could allow wages to
increase at a slower rate than productivity increases.7
°The forward exchange market deals in contracts calling for
the future purchase or sale of foreign exchange. A variety
of transactions take place in this market. For example, a
successful speculator at the time of the British devaluation
was able to sell pounds in the forward market at around
$2.80 per pound. After the devaluation he could buy them
back for $2.40. International traders use the forward facili
ties to hedge. An exporter who knows he will be receiving
foreign funds several months hence will sell these funds in
the forward market at a rate established today. In this
manner, the trader is able to insulate himself from potential
exchange rate fluctuations. The forward market is also used
by those engaging in covered interest rate arbitrage.
7See the papers by Fritz Machlup and Robert Triffin in
Maintaining and Restoring Balance in International Pay
ments, William Fellner, et. al., (Princeton: Princeton Uni
versity Press, 1966), pp. 45-47, 102-104. This book consists
of a series of papers dealing with policy guidelines and was
undertaken at the suggestion of the Group of Ten Industrial
countries.

F EB R UARY .

1969

As a result, costs would decline and this would en
able the country to improve its international price
competitiveness. Conversely, a country experiencing
a surplus in its balance of payments might allow its
wages to increase at a rate higher than productivity
increases, thereby reducing its competitiveness. Such
policies, however, would be difficult to administer
and would probably meet political resistance. Not
only would it be difficult to control wages, but there
are also problems in measuring productivity changes.
In addition, the period of adjustment could be ex
tremely long, and a country with insufficient reserves
might be forced to seek an alternate and more costly
remedy.

The Fixed Exchange Rate and
Domestic Economic Policy
Not only does the present fixed exchange rate sys
tem prevent smooth balance-of-payments adjustments:
it also severely frustrates the application of domestic
stabilization policies.
To understand this weakness, consider the hy
pothetical situation in which a country, such as Italy,
is experiencing inflation but has no balance-of-pay
ments deficit or surplus. In an attempt to control
rising prices, the Italian Central Bank decides to sell
government securities in the open market. This re
duces the level of demand deposits and hence the
funds available to commercial banks.8 Interest rates
and security yields rise. The yield differentials that
emerge between Italian and foreign securities induce
arbitrage, that is, investors sell their foreign assets
and purchase Italian securities. In addition, Italians
borrow funds in countries where interest costs are
lower. This capital inflow creates a surplus in Italy’s
balance of payments. As economic activity slows, im
ports decline and hence the surplus grows.
In order to maintain the exchange rate at its pegged
level, the Italian Central Bank then enters the ex
change markets to purchase the “excess” supply of
foreign exchange. The impact of this operation is
identical to one where the central bank purchases gov
ernment securities in the open market, that is, there

8The analysis of this section is based upon R. A. Mundell,
“Capital Mobility and Stabilization Policy Under Fixed and
Flexible Exchange Rates,” Canadian Journal o f Econom ics
and Political Science, November 1963; and Ronald McKin
non and Wallace Oates, “The Implications of International
Economic Integration for Monetary, Fiscal and Exchange
Rate Policy,” Princeton Studies in International Finance,
November 16, 1966.
Page 17

F E D E R A L R E S E R V E B A NK OF ST

LO UIS

is an increase in the money supply. This will tend
to offset the effect of the original restrictive mone
tary policy. Economic activity will be stimulated to
return to its original level and hence imports will
increase. As interest rates and security yields return
to their original levels the capital inflow will be re
duced, returning the balance of payments to its pre
vious state. Thus the goal of slowing the rate of infla
tion through monetary policy will be thwarted by
the goal of maintaining the pegged exchange rate,
as the following diagram shows.9

F E B RU AR Y ,

1969

W ith this view in mind, foreign officials have
sought to increase the effectiveness of monetary policy
by placing controls on the foreign operations of their
country’s banking institutions.10 Such controls, de
signed to prevent capital inflows during periods of
restrictive monetary policy, include:
1. Limits or ceilings on the expansion of credit
by banks. This reduces the incentive to bor
row in general.
2. Higher reserve requirements against bank
liabilities to foreigners than against liabilities
to its own citizens. This reduces banks’ in
centive to borrow abroad.
3. Quantitative limits on net foreign liabilities.
4. Requirements that a bank’s spot foreign as
sets and liabilities should be equal.
5. Prohibiting interest payments
owned by foreigners.

deposits

In addition, some countries encourage lending abroad
during restrictive periods. This can be accomplished
by providing guarantees against exchange rate
changes or by offering better foreign exchange rates
than could be obtained in exchange markets.
Such controls, however, are merely short-run rem
edies. By reducing the capital inflow, such controls do
indeed increase the immediate effectiveness of the
restrictive monetary policy. However, as economic
activity declines, so does spending on foreign goods
and services. This leads once again to a payments
surplus and the offsetting, expansionary effect on the
money supply. The balance-of-payments effects on
the money supply have merely been postponed until
the impact of changes in the real sector are felt. In
addition such controls reduce the benefits of free
capital flows by leading to an inefficient allocation
of financial resources.
Although the effects of monetary policy are weak
ened under a fixed exchange rate system, fiscal policy
remains effective. L et us suppose that in order to
reduce inflation, Italy increases taxes, thereby reduc
ing government financing operations. As a conse
quence of this decline in government financing op
erations, security prices rise and yields fall. This leads

9This and subsequent analyses are essentially short-run in
nature.
Page 18

10For a detailed discussion of these controls, see Rodney H.
Mills, “The Regulation of Short-Term Capital Movements:
Western European Techniques in the 1960’s,” Staff E co
nomic Studies, Board of Governors of the Federal Reserve
System, May 22, 1968. Also see comments by Otmar Emminger, “Practical Aspects of the Problem of Balance-ofPayments Adjustment,” T he Journal o f Political Econom y,
Supplement, August 1967, p. 39.

FEBRUAR Y ,

F E D E R A L R E S E R V E BA NK OF ST. L O UIS

1969

to a capital outflow and hence a deterioration in the
balance of payments. However, as domestic eco
nomic activity slows because of the reduction in
disposable income, imports will decline and this will
tend to offset the deterioration in the capital account.
Thus balance-of-payments equilibrium will be re
stored, the net effect on the money supply will be
zero, and hence the slowdown in economic activity
will be preserved. This sequence of events can be
seen from the accompanying diagram.
The drawback of fiscal policy is its implementa
tion. As with monetary policy, there is a time lag b e
tween the actual change in economic conditions and
recognition of the need for policy response. Fiscal
policy measures, however, are subject to an addi
tional lag between recognition and actual legislation
of measures. Frequently this lag arises from political
considerations. For example, no one likes an increase
in taxes.
In reality, the responses of the real and financial
sectors to changes in interest rates and aggregate
spending will take time. In addition, there are tariff
and quota restrictions on international trade and vari
ous impediments to the free flow of capital, which
may prevent the process from working itself out.11
In addition, there may be a conflict of policy aims
in the short run. In situations when there is (a )
unemployment and a balance-of-payments surplus or
(b ) inflation and a deficit, policies which change the
level of aggregate spending will be consistent with
the achievement of both internal and external bal
ance. However, when there is ( a ) unemployment
and a payments deficit, or ( b ) inflation and a sur
plus, it becomes difficult for officials to achieve both
domestic and international goals. Policies which re
duce spending and eliminate a balance-of-payments
deficit will only increase unemployment. Similarly,
attempts to reduce a payments surplus by stimulating
spending when there is inflation lead to more, not
less, inflation. Resolving this conflict is not easy since
it involves weighing the value of domestic, so
cial, and political goals against the costs of interna
tional payments imbalances.12
n Impediinents to capital flows may take various forms: 1)
limited access to information; 2 ) higher commission rates
for placing foreign issues; 3 ) difficulties arising from legal
procedures; 4 ) obstacles due to national taxation proce
dures; 5 ) exchange risk; as well as 6 ) governmental con
trols. See OECD, Capital Markets Study: General Report,
Paris, 1967.
12For an approach which emphasizes a “mix” of monetary
and fiscal policy to simultaneously achieve domestic and
international goals, see Robert A. Mundell. “The Appropri
ate Use of Monetary & Fiscal Policy For Internal and
External Stability,” IM F Staff Papers, March 1962.

Domestic and International Stabilization
and the “Crawling Peg”
Many economists have argued that the best method
to avoid the dilemma posed by the present interna
tional monetary system is to allow greater flexibility
in exchange rates.13 This could be achieved by
either or both of the following modifications:
1. Introduce flexibility in the parity exchange
rate so that it might “crawl” over time.
2. Widen the band in which exchange rates
fluctuate around the parity level. (A t present,
the band is one percent on either side of the
parity.)

The “Crawling Peg”
The basic idea behind a “crawling peg” system is
that there exists an exchange rate which equilibrates
the international supply and demand for a particular
currency. However, the possibility that political or
economic uncertainties might generate undesirable
fluctuations in the supply and demand over short
13For example, see the list of twenty-seven economists who
signed a statement advocating greater, though limited, ex
change rate flexibility in ‘ On Limited Exchange Rate
Flexibility,” Fellner, et al., op. cit., p. 111.
Page 19

F E D E R A L R E S E R V E B A NK OF ST. LO UIS

periods suggests that the movement of the exchange
rate should be restrained. To accomplish this, coun
tries would continue to hold the foreign exchange
market rate within a predetermined range during
any business day by sale and purchase of interna
tional reserves.14 However, the parity rate would be
allowed to change from day to day by small amounts.
The actual formula for changing the parity ex
change rate or peg would have to be determined by
the members of the IM F. However, there are at least
two possibilities. James Meade has suggested that the
peg be allowed to “crawl” not more than one-sixth
of one percent in any one month, with the timing
of such changes subject to the discretion of govern
ment officials.15 Such a plan would thus not impinge
upon the sovereignty of individual countries. Never
theless, international co-operation would still have to
be maintained in order to avoid the possibility of
countries undertaking mutually conflicting actions,
such as begger-my-neighbor policies.
An alternative is for the IM F to adopt a plan such
that the peg’s “crawl” is automatic. For instance, to
day’s parity rate might be a moving average of ex
change rates over a certain previous period of time.
(T h e rate would be allowed to move freely within a
band around the “crawling peg.” ) If the trend in a
country’s exchange rate was up, then its parity rate
would crawl up as well. Such a system eliminates the
possibility of human error that would exist under the
discretionary “crawling peg.” On the other hand, it
assumes that the operation of the foreign exchange
market will bring desirable results. The ultimate
choice between these two alternatives would depend
on the results of carefully weighing the political and
economic feasibility of each.

A Wider Band
In the previous discussion we assumed that there
existed around the parity level a band in which ex14Because exchange rates will vary over time, the value of
a country’s reserves will also change. For example, one
country will find that the value of a unit of foreign ex
change from a particular country will decline if the Tatter’s
exchange rate depreciates. The reason a country holds re
serves under the “crawling peg” system is to withstand
sharp exchange rate fluctuations without having to sacrifice
domestic goals. To guarantee that countries will always
have sufficient reserves to meet both their domestic and
international obligations, supplementary reserve facilities
would continue to be needed within the framework of the
IMF.
15James E. Meade, “The International Monetary Mechanism,”
T he T hree Banks Review, September 1964. In a subsequent
article, “Exchange Rate Flexibility,” T he T hree Banks R e
view, June 1966, Meade credits the original idea of the
“crawling peg” to Mr. J. Black of Merton College, Oxford.
Page 20

F EB R UARY .

1969

change rates were free to vary without official inter
vention. The width of the band might remain at two
per cent, as it is today, or it might be broadened per
haps to ten per cent. Under the automatic version
of the “crawling peg,” this band would play an im
portant role, since past exchange rate movements
within it would determine today’s parity. Should the
exchange rate threaten to move outside the limits
prescribed by the band, officials would be obliged to
intervene in the foreign exchange markets.
Any proposal designed solely to widen the band
of variation around an inflexible parity is unsatisfac
tory since it provides no guarantee that the long-run
equilibrium exchange rate will fall within the band.16
It should be emphasized that the “crawling peg” pro
posal is designed to allow exchange rates to seek
their equilibrium levels while limiting undesirable
short-run fluctuations.

Freely Flexible Exchange Rates
An extreme plan for greater exchange rate flexi
bility would eliminate the concepts of “peg” or
“band” and allow rates to fluctuate freely. This pro
posal is countered by those who argue that poten
tially wide fluctuations will lead to increased risk
and hence restrict the growth of international trade
and investment activities. Milton Friedman points
out, however, that intelligent speculators will tend to
move the exchange rate toward its equilibrium
value.17
Consider a situation in which interest rates are
roughly equivalent in the United States and the
United Kingdom and the price of pound sterling is
expected to fall. Speculators will then sell pounds
in the forward exchange market in the hope of later
buying pounds at a lower price. As this forward
selling develops, the forward price of pounds falls.
Arbitragers seeking to take advantage of the spread
between the spot and forward rates will then sell
spot pounds, thus driving down the spot exchange
rate. Simultaneously, they will buy pounds in the
forward market, thus moderating the fall in the for
ward rate caused by the speculative pressures.
The operations of arbitragers and speculators may
help to move the exchange rate toward its ultimate
16The “band” proposal has been elaborated by George N.
Halm, T he “Band" Proposal: T he Limits o f Permissible
Exchange Rate Variations, International Finance Section,
(Princeton: Princeton University Press, 1965).
17Milton Friedman, “The Case for Flexible Exchange Rates,”
Essays in Positive Econom ics, (Chicago: University of
Chicago Press, 1953), pp. 157-203.

F E D E R A L R E S E R V E BA NK OF ST

LO U IS

equilibrium. However, there is no guarantee that they
will always possess sufficient foresight to avoid ad
versely affecting the stability of international trans
actions by under- or over-shooting the long term
equilibrium exchange rate. In fact, this question can
only be answered empirically. As is pointed out in a
later section of this paper, Canada, with a flexible
rate between 1950 and 1962, experienced a growing
level of international trade and investment activity.
In addition, there is evidence that speculation did
not cause any destabilizing exchange rate fluctuations.

F E B RUAR Y . 1969

payments deficit or surplus, there is no offsetting
monetary effect. Consider the following diagram:

It would seem desirable to guard against the un
known risks of flexible exchange rates by adopting
the “crawling peg” constraint on the spot rate. Under
this system, the difference between spot and forward
exchange rates would be kept within reasonable
bounds by arbitrage. This spread is an important con
sideration for international traders and investors who
may desire to hedge their transactions. If the cost
of hedging is high, there will be good reason for the
growth of international transactions to be slowed.
Again, suppose that the price of pound sterling is
expected to fall and that interest rates are roughly
equal in the United States and United Kingdom. In
dividuals would realize that the spot rate cannot fall
by more than a predetermined amount under the
“crawling peg” system. Any divergence of the for
ward rate by more than this would induce arbitrage,
that is, there is an incentive to buy pounds forward
with the knowledge that they can be re-sold at a
price higher than the current forward rate. The for
ward rate would thus be kept within reasonable
bounds by the increased demand generated by such
operations.

Implications for Monetary Policy
One of the implications of the “crawling peg” is
that it would in crease the effectiveness of domestic
monetary policy in the short run.
L et us again consider a situation where Italy is
experiencing inflation and its central bank seeks to
restrain economic activity by selling Government
securities on the open market. As interest rates rise,
investors will find Italian assets more attractive. There
will be an increase in demand for lire, and the ex
change rate will tend to appreciate. As a result, as
the lira appreciates over time, Italy’s exports will de
crease and Italians will substitute imports for domes
tically produced goods. This tends to reinforce, rather
than to weaken, the effects of the original decrease
in the money supply. Because there is no balance-of

It should be emphasized that the continued effec
tiveness of monetary policy in achieving domestic
aims hinges upon the degree of exchange rate vari
ability that the members of the IM F deem to be
acceptable. If the peg is allowed to “crawl” at a slow
Page 21

F E D E R A L R E S E R V E BA NK OF ST. LOUIS

rate, monetary policy will be almost as ineffective as
under a fixed exchange rate system. If, however, the
range of potential variability is reasonably wide, then
monetary policy can be expected to have an influence
on domestic economic activity within a relatively
short period. This will have the added benefit of re
ducing the capital controls required to increase the
effectiveness of monetary policy under the present
system.

The Canadian Experience with
Flexible Exchange Rates
Much remains to be learned from the Canadian
experiment with flexible exchange rates between 1950
and 1962. However, an examination of several issues
surrounding this experience should give us an idea of
some of the problems and possibilities of a ‘ crawling
peg” exchange rate system.
First, the Canadian experience tends to bear out
the theoretical discussion above. Studies carried out
by Rudolf Rhomberg of the IM F indicate that
monetary policy is considerably more effective under
a system of flexible exchange rates than under a
system where rates are pegged.18 In addition, Rhomberg’s results indicate that an increase of $500 million
in Canada’s money supply would cause a depre
ciation in the exchange rate of approximately 1.2
cents during the first quarter of its impact and an
ultimate depreciation of 2.4 cents. This is also con
sistent with our previous discussion.
In spite of the potential strength of monetary policy
under a flexible exchange rate system, the Canadian
business cycle was not eliminated over this period
and, in fact, followed the United States business cycle
very closely. Robert Mundell has argued that this
was mainly the result of improper policies followed
by Canadian monetary authorities,19 rather than a
weakness of the system. His argument runs as fol
lows: During periods when economic activity sub
sided in the United States, demand for credit also
decreased, and this led in turn to a decline in interest
rates. At the same time, however, Canadian monetary
authorities continued to decrease the money supply
for at least six months following increases in their
level of unemployment. As a consequence, interest
rate differentials between the United States and
18Rudolf Rhomberg, “A Model of the Canadian Economy
Under Fixed and Fluctuating Exchange Rates,” Journal of
Political Econom y, February 1964.
19Robert Mundell, “Problems of Monetary and Exchange
Rate Management in Canada,” T he National Banking R e
view, September 1964.
Page 22

F EB R UARY .

1969

Canada widened, bringing about a capital inflow and
an appreciation in the Canadian exchange rate. The
latter tended to reinforce the effects of the United
States business cycle. The inappropriateness of poli
cies was most profound in the period 1958-1960 when,
in the presence of high unemployment, a restrictive
monetary policy was pursued at the same time a
deficit existed in the Government budget. The com
bination of the two brought about a wide difference
between United States and Canadian interest rates
with the attendant exchange rate appreciation.
Concern is voiced in academic, government, and
business circles that flexible exchange rates would
fluctuate so as to discourage international transactions.
The Canadian experience does not support this con
clusion. International trade between 1950 and 1962
doubled and direct investment by foreigners nearly
tripled. In addition, the statistical results of Rhom
berg20 and, more recently, Sven Arndt21 indicate
that short-term capital movements tended to moder
ate movements in the exchange rate. For example,
Rhomberg’s work indicates that if the Canadian threemonth Treasury bill was one per cent higher than the
similar United States rate, approximately the same
amount of short-term capital would flow into Canada
as if there were a depreciation of one cent in the
exchange rate.
Calculations by Yeager22 show that in only six of
the 128 months under the flexible rate system did
the rate fluctuate within a range greater than two
Canadian cents. In more than two-thirds of the
months the range was less than one cent. Longer-run
fluctuations tended to coincide closely with changes
in monetary policy. During periods when monetary
policy was restrictive, the exchange rate tended to
appreciate, and conversely. No doubt, if changes in
these policies had been better timed and more gradual,
these longer fluctuations would have been moderated
even further.

Conclusions
If the industrialized nations of the world are
going to place heavy reliance on monetary actions to
achieve domestic goals, then under a pegged exchange
rate system these actions may be considerably weak
20Rhomberg, p. 12.
21Sven Arndt, “International Short-Term Capital Movements:
A Distributed Lag Model of Speculation in Foreign Ex
change,” Econom etrica, January 1968.
22Leland Yeager, International Monetary Relations, Harper
and Row, 1966, pp. 425-426.

F E D E R A L R E S E R V E BANK OF ST

FEBRUAR Y .

LO UIS

ened unless controls on capital movements are im
posed. This involves costs: not only are such restric
tions incompatible with the goal of international
currency convertibility, but by raising “barriers” to
entry into international capital markets, these restric
tions bring about an inefficient allocation of resources
throughout the world. In addition, the present pegged
exchange rate system is not conducive to international
adjustment, but instead fosters periodic uncertainty
in the form of exchange rate crises.

1969

On the other hand, a system of crawling exchange
rates renders monetary policy effective without capital
controls. In fact, to assure that this is the case, it is
necessary to reduce impediments to the free inter
national flow of capital. Equally important is that
this system enables long run balance-of-payments ad
justments through greater exchange rate flexibility.
The increased flexibility does not mean instability,
however, for the exchange rate will be free to vary,
or “crawl”, only within bounds predetermined by the
IM F.

W O RKIN G PA PERS
O IN G L E C O PIES of the following working papers are available to persons
with a special interest in these research areas, and any discussion or comment
would be welcomed by each author. For information write: Research Depart
ment, Federal Reserve Bank of St. Louis, P. O. Box 442, St. Louis, Missouri 63166.
Number

1
2

3
4

5
6
7

Title of Working Paper

Release Date

The Three Approaches to Money Stock Analysis
(Now available in our Reprint Series as No. 24)

July 31, 1967

Chapter on Agribusiness Prepared for American
Institute of Banking Textbook A gricultural C redit
(5 0 pages)

Aug.

Monetary Policy and the Business Cycle in Post
war Japan (108 pages)

Apr. 30, 1968

The Influence of Fiscal and Monetary Actions on
Aggregate Demand: A Quantitative Appraisal
(58 pages)

Oct. 20, 1967

The Development of Explanatory Economic Hyphotheses for Monetary Management (48 pages)

Nov. 8, 1968

A Model of the Markets for Consumer Instalment
Credit and New Automobiles (60 pages)

Jan.

1, 1969

A Summary of the Brunner-Meltzer Non-Linear
Money Supply Hypothesis (40 pages)

Jan.

1, 1969

1, 1967

Page 23

o f JhiA Sank Qnsduudsi:

Weekly

U. S. FINANCIAL DATA

Monthly

REVIEW
MONETARY TRENDS
NATIONAL ECONOMIC TRENDS
SELECTED ECONOMIC INDICATORS - CENTRAL
MISSISSIPPI VALLEY

Quarterly

FED ER A L RUDGET TRENDS
U. S. BALANCE OF PAYMENTS TRENDS
TRIANGLES OF U. S. ECONOMIC DATA
GROSS NATIONAL PRODUCT

Annually

TRIANGLES O F U. S. ECONOMIC DATA
RATES OF CHANGE IN ECONOMIC DATA
FOR TEN INDUSTRIAL COUNTRIES
(QUARTERLY SUPPLEMENT)

Copies of these publications are available to the public without charge, including
bulk mailings to banks, business organizations, educational institutions, and others.
For information write: Research Department, Federal Reserve Rank of St. Louis,
P. 0 . Rox 442, St. Louis, Missouri 63166.

Full text of Review (Federal Reserve Bank of St. Louis) : February 1969

FRASER