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C E N T R A L B A N K I N G S E M I N A R Sponsored by Federal Reserve Bank of Dallas March 14-16, 1966 m .0fH Z ^ MARI CENTRAL BANKING SEMINAR Federal Reserve Bank of Dallas March 14, 159 and 16 , 1966 Agenda March 14 First Day 8:45 - 9 :15 Registration and Welcome to Group 9:15 - 9:^5 Film: 9:45 - 11:00 11:00 - 12:00 Money on the Move - Federal Reserve Bank Today Tour of Bank Questions and Answers: Reserve Banks Operating Functions of the Moderator: Watrous H. Irons, President, Federal Reserve Bank of Dallas 12:15 - 1:15 1:3 0 - 2 :15 Lunch - Bank dining room Research and Formulation of Monetary Policy Daniel H. Brill, Director, Division of Research and Statistics, Board of Governors of the Federal Reserve System 2 :1 5 - 3:00 Member Bank Reserves and Related Factors Ralph T. Green, Vice President, Federal Reserve Bank of Dallas 3:00 - 3:15 Recess 3 :1 5 - 4:00 The Discount Window: Policy and Practice P. E* Coldwell, First Vice President, Federal Reserve Bank of Dallas 6:00 - 7:15 \ / 7:30 - 9:00 Dinner - Baker Hotel Role of Monetary Policy Karl R. Bopp, President, Federal Reserve Bank of Philadelphia 1966 March 15 Second Day 9:00 - 10:00 Formulation and Execution of Monetary Policy Robert C. Holland, Adviser to the Board, Board of Governors of the Federal Reserve System 10:00 - 11:00 Open Market Operations Alan R. Holmes, Vice President, Federal Reserve Bank of New York, and Manager, System Open Market Account 11:00 - 11:15 Recess 11:15 “ 12:15 Treasury Debt Management R. Duane Saunders, Director, Office of Debt Analysis, United States Treasury Department 12:30 - 1:30 Lunch - Bank dining room 1:45 - 2:45 United States Balance-of-Payments Problems / Ralph A./Young, Senior Adviser to the Board, and Director, Division of International Finance, Board of Governors of the Federal Reserve System 2:45 - 3:00 Recess 3:00 - 4:00 Work of the Presidents Council of Economic Advisers Wilfred Lewis, Jr., Senior Staff Economist, Council of Economic Advisers, Executive Office of the President 5:30 - 7:15 7:30 - 9:00 Social Hour and Buffet Dinner - Baker Hotel -/ Panel Discussion: Current Policy and Problems (all speakers) March 16 Third Day 9:30 - 10:45 Foreign Operations Charles A* Coombs, Vice President, Federal Reserve Bank of New York 10:^5 - 11:00 Recess 1 1 :0 0 Nonbank Financial Institutions: Debt Management Policies - 12 :00 Impact of Monetary and James J* O'Leary, Vice President and Director of Economic Research, Life Insurance Association of America 12:00 - 12:15 Concluding Questions and Discussion 12:15 - Lunch - Bank dining room 1:15 March 1, 1966 THE ROLE OP MONETARY POLICY Introduction A* M y carder 1« Began study just 40 years ago a* Had answers after m y first course! (I) "Premature anxiety to establish fundamental lavs" - Bentham (II)Brown & Rogers, favorite students of Pisher 2« Practicing the art has been a sobering experience a* Much less certain of either theory or application Still have some convictions- or prejudices as y ou will discover - B. Definition of the Problem 1» Torn have full courses devoted to it 2 . What does one say in an hour? I shall limit myself to a« How does monetary policy fit into economic policies of the government generally^ h* Where does the monetary au thority fit into the structure of government? Relation of Monetary P0licy to fcther Economic Policies. A. Concerned primarily (but not exclusively: selective instruments 1) with influencing AGGREGATE DEMAND. B. But other governmental policies also influence aggregate demand1 1« Fiscal policy: a* ¡Origin in the great depression -as a supplement to monatBHy policy b. Soon usurped the whole field (graduate enrollment*) c. Neither can do the whole job alone at all times* The large surplusses of 1947 and 1948 did not halt inflation; because with an easy monetary policy, the private economy went into debt faster than the government came out (also local governments) d* Advantages of fiscal policy It has not only aggregative effeets but inherently has selective or distributive effects 3 (I) The sources of revenue (tax policy) affect (A) The distributi on of wealth and income (±*EBjLfc±xaai (B) The division of GNP between consumption and investment and therefore the rate of GROWTH (Cj The profitability (both absolute and relative) of enterprise and thus total output as well as the distribution of our resources (eg. depletion allowances; investment credits, depreciation- allowances, etc, capital gains vs income, etc.) (D) The rate of interest (II) Government expenditures affect (A$ The allocation of our resources (B) The level of structural unemployment (1) Regional: Appalachia (2) Other: Poverty pockets education (C) The balance of payments government expenditures for defense development 2. Debt management policy a. Reginald McKenna ■£ Chancellor and of Midland Bank on the grewt refunding of 1932? b. Debt management, liquidity, and the flow of expenditures some problems of a p p l ic a ti on : issue long terms when rates are nigji & rising the 4%fo ceiling 3. Other governmental policies a. Price/wwge guidelines b. trade policy 4 C* The role of general monetary policy l..The matter of timings a » Fiscal policy though powerful, is cumbrous b. Monetary policy is flexible c* Handicap to monetary authoritys it must operate on economy as it results from other governmental policies* 2* Its contribution to our economic objectives a* to the basic economic environments It is ”calcdlated to foster and promote free competitive enterprise.” The b ± z role of money as an instrument of choice Monetary policy as a means of inducing individuals of their own volition to achieve socisl goals while pursuing their own interest* b. Maximum employment (I) relation of unemployment to social problems youth and the disadvantaged (II) If full employment becomes our sole objective, irrespective of wage rates, we are in for trouble (III) Monetary policy for aggregate demand deficiency expenditure for structural c. Stabll prices (I) Not for their own sake, but because of con sequences of fluctuating levels d. Balance of Payments e. Growth specific rate is not appropriate objective for monetary policy. í'< M - fií»--,, /) fi, „ LAJ~*-*C(J-P '. "fe Ì c < xJ~ ^ /. Æ-t, CX , /ö ffl-C-JT' LA+^~f LA ~ O tT V -W V ^ S JW ^ T U ? ¿ ^ ¿JL-u Í^^JfL £ ¿ u -^ U ^ V ¿^S-e-ju^JL^J 3 , ( X ^ ^ .U J - L * - < """"Cx-*"1-■*•c- ¿ I L *-o- (%~Jh J A^"^4 un, * M £ 'r * ^ ß y j - 6, - j2— ¿La m ju X ^ /¿í> á ¿ru Ö..S. C*-«^aJ^í < h ch -o ^ T / /2L~-»-a_A¿v~ i /¿ e 8 <C S*0c*~ Æ jk. /vVm /Íj-tíí-.c.I V\ J j í L - A S^\ 3. Cw . C— i - . ^USS.) f /, A w . ¿ <* , «2>¡$ 1. f. J ^ a Iî yû-#Vw^CkV**3 Jr <*. / é ^ Jt / fo h lIT W<-Cu^UrU \ d < ^ C ^ P _* A-c-J*’ ^~-^s~xjl^^-QA^ *' M «. " " " / / I& L J ¿ & U iJr A -^ £ ~ A A .+ < ^ 4 *J¡sl^ ¿ ,i <¿. r«-<j> - £*^. „».^ A^Cfr. ^Cc/-* c ts ¿ e -l ¿ > /ttf y ^ x J L - 4 U *. C x ^ r^ y t C + ^ .p JX a a ^Q ^ ( j i s j f 'X * Ë J/z ru J A ^ ^ ó -& "\J^ -€.. ¿y V < Z' Íc l- c ^ . ííí^ ^ ^ ^ A J L c C -C ^ c¿ ou¿ * & ¿y p , ^ u j^ t ^ h> 'f /$ a ^ c J< i Á r * ^ 2U^, ^ / é ^ + ^ u A -r ^ 5 v FR 731* NET CHANGE IN U.S. INTERNATIONAL RESERVE POSITION Billions of dollars +4 +2 -2 -U FR 731» U.S. NONMILITAKY IMPORTS AS PERCENTAGE OF GROSS NATIONAL PRODUCT Percent Table 1« Reserve assets Reserve position in IMF End of year Gold stock 1945 20.1 -- 1946 1947 1948 1949 1950 20.7 22.9 24.4 24.6 22.8 1.0 1.4 1.5 1.4 1951 1952 1953 1954 1955 22.9 23.3 22.1 21.8 21.8 1.4 1.5 1.4 1.2 1.0 1956 1957 1958 1959 1960 22.1 22.9 20.6 19.5 17.8 1.6 2.0 2.0 2.0 1.6 1961 16.9 1962 1963 1964 1965 16.1 15.6 15.5 13.8 Foreign currency holdings Total U«, Sc Tnt em a t t o n a i Reserve Position (In billio-is of dollars.) Reserve Liabillti es To official institute ons in foreign couriiiri? s__ U.S. Govt, boiids and notes To NonnarShort- MarketIMF able ketable term Total — — 4.5 15.6 450 __ __ --- -- 3.2 2.0 3.0 3.0 4.5 17.6 21.9 22.8 23.0 19.8 660 1,220 930 860 540 -- 3.9 5.2 6.1 7.2 7.8 20.4 19.6 17.3 15.8 15.0 630 480 380 320 290 .2 .2 .2 .5 .8 8.9 8.9 9.5 10.6 11.9 14.7 16.0 13.1 10.9 7.5 260 280 240 200 163 — 20.1 4.2 .3 -- 20.7 22.9 25.8 26.0 24.3 3.0 1.8 2.8 2.9 3.6 .1 .1 .1 .1 .9 24.3 24.7 23.5 23.0 22.8 3.5 4.7 5.7 6.8 7.0 .3 .5 .5 .4 .9 — 23.7 24.8 22.5 21.5 19.4 8.0 7.9 8.7 9.2 10,2 .7 .8 .6 .9 .8 1.7 .1 18.8 10.9 .9 1.1 .1 .2 .4 .8 17.2 16.8 16.7 15.5 12.0 12 e5 .7 1.2 1.1 1.1 «» 1 . 0 .8 .9 -- __ --— - - 13c 2 1 3 . 0 — -- --- __ __ --— ---— — ... .3 .9 1.4 1 . 7 --— Assets less Liabilities Assets as percent of Liabilities .8 12.6 6.2 149 ,8 .8 .8 c8 13-7 15.3 16c 6 16.7 3.5 1.5 .1 -1.2 125 110 101 93 Table 2. Period Gold stock Reserve assets IMF position and foreign currency holdings «• m Changes in U.S. International Reserve Position Total (In billions of dollars) Reserve liabilities To official institutions To in foreign IMF countries +• 6 +3.2 +1.9 +.3 -1.8 -1.3 -1.2 +1.0 +.0 +1.5 •• -.6 +1.3 +1.0 +1.0 +.6 -- -.1 +.0 +.4 -1.3 -.5 -.2 +• 3 +.8 -2.3 -1.1 -1.7 +.6 +.4 -.0 +.0 -.4 +.9 +1.2 -2.3 -1.0 -2.1 +.9 -.1 +. 6 +.8 +1.0 +.2 -— 1961 1962 1963 1964 1965 -.9 -.9 -.5 -.1 -1.7 +. 3 -.6 +.1 -.0 +.4 -.6 -1.5 -.4 -.2 -1.2 +.7 +1.1 +1.6 +1.2 +.0 1946-49 1950-57 1958-65 +4.5 -1.7 -9.1 +1.5 +.5 -.3 +5.9 -1.2 -9.4 -1.5 +5.6 +7.2 1946 1947 1948 1949 1950 + .6 +2.2 +1.5 +.2 -1.7 1951 1952 1953 1954 1955 +.1 +.4 -1.2 -.3 -.0 -.0 +. o -.1 -.2 1956 1957 1958 1959 1960 +1.0 +.4 +.1 -.0 Total Assets less liabilities J-year moving ave. During centered period -1.3 -1.2 +1.0 +. 0 +1.5 +2.0 +4.4 +.9 +. 2 -3.3 n.a. +2.4 +1.8 -.7 -.8 -.6 +1.3 +1.0 +1.0 +.6 +.7 -.9 -2.2 -1.5 -.8 -1.1 -.8 -1.5 -1.5 -.9 +1.1 -.1 +.6 +1.1 +1.3 -.3 +1.2 -2.9 -2.2 -3.4 +.1 -.6 -1.3 -2.8 -2.3 — -+.0 +.7 +1.1 +1.6 +1.2 +.1 -1.3 -2.7 -2.0 -1.4 -1.3 -2.5 -2.0 -2.0 -1.6 n.a. -+.2 +.6 -1.5 +5.8 +7.8 +7.4 -7.0 -17.2 -— — -- — — — -- +. 3 +. 3 --- SOURCES AND USES OF MEMBER BANK RESERVES (in millions of dollars) Dec. 30» 1964 Dec. 29, 1965 Change Effect of Change on Reserves Source Use Sources Gold stock Treasury currency outstanding Reserve bank credit— total U.S. Government securities Bought outright Held under repurchase agreement Acceptances Bought outright Held under repurchase agreement Discounts and advances Member bank borrowings Other Float Total sources 15,388 ( 39, 688 ) 13,734 5,591 (43,808) 36,506 40,631 257 258 56 5,405 10 327 30 it 60 1,654 -1,654 +186 186 (+4,120) (4,120) +4,125 +1 4,125 1 73 91 +17 17 +81 81 499 4l 2^21^ &LÌ33 +172 172 +11 11 -287 287 42,314 820 533 159 +2,539 +I78 -221 -69 +39 -729 2,539 178 Uses Currency in circulation Treasury cash holdings Treasury deposits with Federal Reserve banks Foreign deposits with Federal Reserve banks Other deposits with Federal Reserve banks Other Federal Reserve accounts (net) 39,775 642 1,067 338 Member bank reserves at Federal Reserve banks Total uses 17,826 60,480 18,742 53A33 15 k 228 188 227 +916 221 69 39 729 916 K M 5 3 3 NOTE: Member bank reserves With Federal Reserve banks Currency and coin (estimated) Total reserves held Required reserves (estimated) Excess reserves (estimated) 17,826 ...jb .3 5? 18,742 4,644 22,185 23,386 21,554 63T 22.786 600 Chart I CHANGE IN FEDERAL RESERVE ACCOUNTS December 1964 - December 1965 Millions of dollars Reserves supplied through other factors (net) Required reserves Excess reserves, -130 — ^ 1,16 0 Total member bank reserves Member bank borrowings 0 Federal Reserve's holdings of United States Government securities and bankers1 acceptances 3,980 1,0 30 Currency held by the nonbank public 2,090 REQUIRED RESERVE COMPONENTS _______ /\______ : Against United States Government deposits Against interbank ----- bO Against pri*__vate demand deposits Against time deposits Chart II CHANGE IN THE MONEY SUPPLY December 1964 - December 19^5 Millions of dollars MONEY SUPPLY COMPONENTS __________ a Currency held by the nonbank public Nonmember bank demand deposits 2,160 Member bank demand deposits Required reserves against member bank private demand deposits 575 ------- M25 15 Foreign deposits at the Federal Reserve Chart III CHANGE IN BANK ASSETS AND LIABILITIES December 1964 - December 1965 Millions of dollars 'Nonmember' bank credit 4,500 All other assets and adjustments =Z j< ---- 935 ____ E ^ Member bank reserves 1,030 All other liabilities and adjustments -4,185 Nonmember bank time deposits 3,480 Member bank time deposits Member bank credit 21, 58O Demand deposits in money supply Nonmem 2,160 ber bank Member bank 4,325 United States Government id deposit« -900 v r 16,600 ^,130 2,435 Borrow ings Bank capital Chart IV CHANGE IN COMMERCIAL BANK CREDIT BY COMPONENTS December 1964 - December 1965 Billions of dollars or percent Composition of change in total bank credit I I Investments Loans other than business loans Total bank credit 26.I 48* Business loans II .7 Business loans I Other I securities 5.9 United States Governments -4.1
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