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Statement of
William McChesney Martin, Jr,
Chairman, Board of Governors of the Federal Reserve System
before the
Committee on Banking and Currency
House of Representatives
H. R. 16911
To Provide for United States Participation in the
Facility Based on Special Drawing Rights in the
International Monetary Fund

May 1, 1968

The Board of Governors of the Federal Reserve System supports
the proposed Amendment to the IMF Articles of Agreement, and the legislation which is being put forward to bring about U.S. ratification of
the Amendment to provide for establishment of the Special Drawing Rights

The Board believes that establishment of this facility will

be very much in the interests of the United States.
Establishment of the system of Special Drawing Rights in the
International Monetary Fund will mean that the growth of international
monetary reserves will for the first time be subject to rational international decision.

The need for establishing such a system arises from

vital interests in maximum employment, production, and trade.


countries want their reserves to grow over time, with the growth of
international trade and payments, but the supply of existing kinds
of reserve assets, including gold, clearly will not be enough to meet
this need.

Unless world reserves grow at an adequate rate, some

countries could gain reserves only at the expense of the reserve holdings
of other countries.

In an effort to avoid reserve losses, and, if possi-

ble, to achieve reserve gains, more and more countries would tend to
adopt much more restrictive economic policies than they would otherwise
be likely to follow.

I need not spell out the vicious circle of world-

wide deflation that general pursuit of such policies could produce.
This is what makes Special Drawing Rights important to every worker,
every businessman, every industrialist, and every banker in the country.


In stressing the tremendous value that this new system can
have —


the world at large as well as for the UnitedStates—


want to exaggerate its probable impact in the years immediately ahead.
We do not know when the SDR system will be activated, or at what rate
the participating countries will agree to create SDR's in the first

The growth of reserves could be too slow for some year to come.

The only thing we can be sure about is that with the SDR facility in
existence, reserve growth at an adequate rate will be possible; without
that facility, the world economic outlook for the medium and longer term
would be much less favorable.
I should like now to say something about the relation between
SDR's and the March 17 decision by the member countries of the nowdefunct gold pool to establish a two-market system for gold.

As you

know, the negotiations looking to the establishment of an SDR system
were going on long before the mid-March meeting, held here in Washington,
on the gold problem.

In fact, most of the basic principles of the SDR

system were agreed upon last September at Rio.

It was this fact, as

much as anything else, that made the two-market decision possible.
As stated in the Washington Communique of March 17, the
central-bank Governors of the gold-pool countries concluded that "as
the existing stock of monetary gold is sufficient in view of the
prospective establishment of the facility for Special Drawing Rights,
they no longer feel it necessary to buy gold from the market."


do not


it is therefore essential that increases in world reserves of other
types take place, SDR's should be available to serve that purpose.
In other words, while the prospective establishment of the
SDR facility was a key factor making the two-market system possible,
the fact that the two-market system was adopted reinforces the need to
establish the SDR facility.

If the SDR system were not to be estab-

lished, the viability of the two-market system for gold would be seriously
For the reasons I have indicated, the Federal Reserve warmly
supports the proposed Amendment of the IMF Articles of Agreement, and
the legislation which is being put forward to provide for its ratification by the United States.

Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102