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Swap Arrangements - General, 1970-75 (4)
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Swap Arrangements - General, 1970-75 (4)
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The original documents are located in Box B98, folder "Swap Arrangements - General,
1970-75 (4)" of the Arthur F. Burns Papers at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald R. Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
STRICTLY CONFIDENTIAL (FR)
SWAP ARRANGEMENTS BETWEEN THE SYSTEM
AND FOREIGN CENTRAL BANKS
May 9, 1973
Listed below as of May 9, 1973, are the swap arrangements
concluded on behalf of the Federal Reserve System with foreign banks.
Amount of
Agreement
Maturity of
(millions of
latest authorized
Foreign Bank
dollars)
renewal
Austrian National Bank
200
December 3, 1973
National Bank of Belgium
600
December 21, 1973
Bank of Canada
1,000
December 28, 1973
National Bank of Denmark
200
December 3, 1973
Bank of England
2,000
December 3, 1973
Bank of France
1,000
December 28, 1973
German Federal Bank
1,000
December 14, 1973
Bank of Italy
1,250
December 31, 1973
Bank of Japan
1,000
December 3, 1973
Bank of Mexico
130
December 3, 1973
Netherlands Bank
300
December 28, 1973
Bank of Norway
200
December 3, 1973
Bank of Sweden
250
December 3, 1973
Swiss National Bank
1,000
December 3, 1973
B.I.S.
1,000( 600)
December 3, 1973
(1,000)1/
December 3, 1973
Total
11,730
1/ This reciprocal arrangement provides for swaps of dollars against
authorized European currencies other than Swiss francs.
FORD is 074839 LIBRARY
STRICTLY CONFIDENTIAL (FR)
-2-
As of May 9, 1973, drawings on the above arrangements are
outstanding in the amounts indicated below:
Drawings Outstanding on Swaps
Date since
facility has
Initiated
Initiated
been in con-
Arrangements with
by System
by foreign bank
tinuous use
(millions
of dollars
equivalent)
National Bank of Belgium
390
--
June 30, 1970
Swiss National Bank
565
--
May 19, 1971
B.I.S. (Swiss francs)
600
--
August 12, 1971
Total
1,555
FORD & GERALD LIBRARY
STRICTLY CONFIDENTIAL (FR)
SWAP ARRANGEMENTS BETWEEN THE SYSTEM
GERALD R. FORD LIBRANA
AND FOREIGN CENTRAL BANKS
June 13, 1973
Listed below as of June 13, 1973, are the swap arrangements
concluded on behalf of the Federal Reserve System with foreign banks.
Amount of
Agreement
Maturity of
(millions of
latest authorized
Foreign Bank
dollars)
renewal
Austrian National Bank
200
December 3, 1973
National Bank of Belgium
600
December 21, 1973
Bank of Canada
1,000
December 28, 1973
National Bank of Denmark
200
December 3, 1973
Bank of England
2,000
December 3, 1973
Bank of France
1,000
December 28, 1973
German Federal Bank
1,000
December 14, 1973
Bank of Italy
1,250
December 31, 1973
Bank of Japan
1,000
December 3, 1973
Bank of Mexico
130
December 3, 1973
Netherlands Bank
300
December 28, 1973
Bank of Norway
200
December 3, 1973
Bank of Sweden
250
December 3, 1973
Swiss National Bank
1,000
December 3, 1973
B.I.S.
1,000( 600)
December 3, 1973
(1,000)1/
December 3, 1973
Total
11,730
1/ This reciprocal arrangement provides for swaps of dollars against
authorized European currencies other than Swiss francs.
STRICTLY CONFIDENTIAL (FR)
-2-
As of June 13, i973, drawings on the above arrangements are
outstanding in the amounts indicated below:
Drawings Outstanding on Swaps
Date since
facility has
Initiated
Initiated
been in con-
Arrangements with
by System
by foreign bank
tinuous use
(millions
of dollars
equivalent)
National Bank of Belgium
390
--
June 30, 1970
Swiss National Bank
565
--
May 19, 1971
B.I.S. (Swiss francs)
600
--
August 12, 1971
Total
1,555
FORD & LIBRARY 038470
6/14
S. Call John Reynolds- - that he can inform
Treasury.
(Retain the memo for
Dr. B's files)
FORD i LIBRARY 078870
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
to
Office Correspondence
Date June 14, 1973
To
Chairman Burns
Subject: Status of Negotiation on
From John E. Reynolds Jak
Increasing Swap Lines
STRICTLY CONFIDENTIAL - F.R.
Mr. Bodner telephoned from New York this morning to
report on the status of the negotiations for increasing Federal
Reserve swap lines.
Canada. Bodner had discussions yesterday in Ottawa with
Bank of Canada officials, and found them generally receptive to the
idea of an increase in the swap line to $2 billion. They will give
a more definite answer at Basle this weekend.
Japan. The Japanese are favorably disposed to an increase
in the line to $2 billion, providing that similar increases are
negotiated with France and Germany.
Germany. An increase in the swap line to $2 billion seems
to be agreeable to them.
Other Europeans. Mr. Coombs expects to bring negotiations
with them to something near a conclusion this weekend at Basle.
General. The aim has been to get agreements in principle,
without final detailed agreement so that the matter will not have to
reported to the EEC Commission where leaks might occur. The whole
package could then be finalized and announced at a time judged
propitious from the point of view of market psychology.
GERALD Adbyait ? FORD
- 2 -
Bodner and some Europeans note that it would be desirable
to have the revaluation clause agreed, at least with those countries
on whom we might be likely to draw, at the same time, so that the
announced increase in swap lines will not be purely cosmetic.
Query: Do you wish Coombs, or Bodner, or me to inform
the Treasury of any of the above? Or are you keeping them informed?
II
you
ok
R.
GEORGIA R. FORD LIBRARY
Proposed Changes in Federal Reserve Swap Network
Foreign Bank
Increase
Total
Austrian National Bank
50
250
National Bank of Belgium
400
1959
1,000
Bank of Canada
City
1,000
2,000
National Bank of Denmark
50
250
Bank of England
--
2,000
Bank of France
1,000
2,000
German Federal Bank
1,000
2,000
Bank of Italy
750
2,000
Bank of Japan
1,000
2,000
Bank of Mexico
50
180
Netherlands Bank
200
500
Bank of Norway
50
250
Bank of Sweden
50
300
Swiss National Bank
400
1,400
Bank for International Settlements
Swiss francs/dollars
--
600
Other European currencies/dollars
250
1,250
TOTALS
6,250
17,980
FORD is LIBRARY GERALD
FEDERAL RESERVE
OF SYSTEM OF THE THEREAL
press release
For immediate release
July 11, 1973
The Federal Reserve System said today 13 foreign central banks and
the Bank for International Settlements were involved in the $6.25 billion
swap network increase announced yesterday.
The largest increases, of $1 billion each, involved the Bank of
Canada, Bank of France, German Federal Bank and the Bank of Japan.
A swap arrangement is a short-term facility under which the
Federal Reserve and another central bank mutually agree to exchange
dollars for the currency of the other country up to a maximum amount over
a limited period of time.
The increases and the new totals of the swap lines are as follows
(in millions of dollars):
Foreign Bank
Increase
Total
Austrian National Bank
50
250
National Bank of Belgium
400
1,000
Bank of Canada
1,000
2,000
National Bank of Denmark
50
250
Bank of England
--
2,000
Bank of France
1,000
2,000
German Federal Bank
1,000
2,000
Bank of Italy
750
2,000
Bank of Japan
1,000
2,000
Bank of Mexico
50
180
Netherlands Bank
200
500
Bank of Norway
50
250
Bank of Sweden
50
300
Swiss National Bank
400
1,400
Bank for International Settlements
FORD i LIBRARY 973870
Swiss francs/dollars
--
600
Other European currencies/dollars
250
1,250
TOTALS
6,250
17,980
(Note: The foregoing announcement is also being released by
the Federal Reserve Bank of New York)
- 0 -
STRICTLY CONFIDENTIAL (FR)
GERALD R. FORD LIBRANA
SWAP ARRANGEMENTS BETWEEN THE SYSTEM
AND FOREIGN CENTRAL BANKS
July 11, 1973
Listed below as of July 11, 1973, are the swap arrangements
concluded on behalf of the Federal Reserve System with foreign banks.
Amount of
Agreement
Maturity of
(millions of
latest authorized
Foreign Bank
dollars)
renewal
Austrian National Bank
250
December 3, 1973
National Bank of Belgium
1,000
December 21, 1973
Bank of Canada
2,000
December 28, 1973
National Bank of Denmark
250
December 3, 1973
Bank of England
2,000
December 3, 1973
Bank of France
2,000
December 28, 1973
German Federal Bank
2,000
December 14, 1973
Bank of Italy
2,000
December 31, 1973
Bank of Japan
2,000
December 3, 1973
Bank of Mexico
180
December 3, 1973
Netherlands Bank
500
December 28, 1973
Bank of Norway
250
December 3, 1973
Bank of Sweden
300
December 3, 1973
Swiss National Bank
1,400
December 3, 1973
B.I.S.
1,250( 600)
December 3, 1973
(1,250)1/
December 3, 1973
Total
17,980
1/ This reciprocal arrangement provides for swaps of dollars against
authorized European currencies other than Swiss francs.
STRICTLY CONFIDENTI. (FR)
-2-
As of July 11, 1973, drawings on the above arrangements are
outstanding in the amounts indicated below:
Drawings Outstanding on Swaps
Date since
facility has
Initiated
Initiated
been in con-
Arrangements with
by System
by foreign bank
tinuous use
(millions
of dollars
equivalent)
National Bank of Belgium
390
--
June 30, 1970
Swiss National Bank
565
--
May 19, 1971
B.I.S. (Swiss francs)
600
--
August 12, 1971
Total
1,555
FORD is LIBRARY 938870
STRICTLY CONFIDENTIAL (FR)
GERALD R. FORD LIBRABY
SWAP ARRANGEMENTS BETWEEN THE SYSTEM
AND FOREIGN CENTRAL BANKS
September 12; 1973
Listed below as of September. 12, 1973, are the swap arrangements
concluded on behalf of the Federal Reserve System with foreign banks.
Amount of
Agreement
Maturity of
(millions of
latest authorized
Foreign Bank
dollars)
renewal
Austrian National Bank
250
December 3, 1973
National Bank of Belgium
1,000
December 21, 1973
Bank of Canada
2,000
December 28, 1973
National Bank of Denmark
250
December 3, 1973
Bank of England
2,000
December 3, 1973
Bank of France
2,000
December 28, 1973
German Federal Bank
2,000
December 14, 1973
Bank of Italy
2,000
December 31, 1973
Bank of Japan
2,000
December 3, 1973
Bank of Mexico
180
December 3, 1973
Netherlands Bank
500
December 28, 1973
Bank of Norway
250
December 3, 1973
Bank of Sweden
300
December 3, 1973
Swiss National Bank
1,400
December 3, 1973
B.I.S.
1,850( 600)
December 3, 1973
(1,250)1/
December 3, 1973
Total
17,980
1/ This reciprocal arrangement provides for swaps of dollars against
authorized European currencies other than Swiss francs.
STRICTLY CONFIDENTIAL (FR)
-2-
As of September 12, 1973, drawings on the above arrangements
are outstanding in the amounts indicated below:
are outstanding
Drawings Outstanding on Swaps
Date since
facility has
Initiated
Initiated
been in con-
Arrangements with
by System
by foreign bank
tinuous use
(millions
of dollars
equivalent)
National Bank of Belgium
362
:
June 30, 1970
Swiss National Bank
565
--
May 19, 1971
B.I.S. (Swiss francs)
600
:
August 12, 1971
German Federal Bank
5
:
July 12, 1973
1,532
GERALD FORD VIBRARY
STRICTLY CONFIDENTIAL (FR)
R.
FORD
SWAP ARRANGEMENTS BETWEEN THE SYSTEM
AND FOREIGN CENTRAL BANKS
January 16, 1974
THE
Listed below as of January 16, 1974, are the swap arrangements
concluded on behalf of the Federal Reserve System with foreign banks.
Amount of
Agreement
Maturity of
(millions of
latest authorized
Foreign Bank
dollars)
renewal
Austrian National Bank
250
December 3, 1974
National Bank of Belgium
1,000
December 21, 1973
Bank of Canada
2,000
December 28, 1973
National Bank of Denmark
250
December 27, 1974
Bank of England
2,000
December 3, 1974
Bank of France
2,000
December 28, 1973
German Federal Bank
2,000
December 14, 1973
Bank of Italy
2,000
December 31, 1973
Bank of Japan
2,000
December 3, 1974
Bank of Mexico
180
December 3, 1974
Netherlands Bank
500
December 28, 1973
Bank of Norway
250
December 3, 1974
Bank of Sweden
300
December 3, 1974
Swiss National Bank
1,400
December 3, 1974
B.I.S.
1,850 ( 600)
December 3, 1974
(1,250)1/
December 3, 1974
Total
17,980
1/ This reciprocal arrangement provides for swaps of dollars against
authorized European currencies other than Swiss francs.
STRICTLY CONFIDENTIAL (FR)
-2-
As of January 16, 1974, drawings on the above arrangements
are outstanding in the amounts indicated below:
Drawings Outstanding on Swaps
Data since
facility has
Initiated
Initiated
been in con-
Arrangements with
by System
by foreign bank
tinuous use
(millions
of dollars
equivalent)
National Bank of Belgium
262
--
June 30, 1970
Swiss National Bank
532
--
May 19, 1971
B.I.S. (Swiss francs)
600
--
August 12, 1971
Total
1,394
FORD s LIBRARY 07V838
STRICTLY CONFIDENTIAL (FR)
R.
FORD
GERALD
SWAP ARRANGEMENTS BETWEEN THE SYSTEM
AND FOREIGN CENTRAL BANKS
LIBRARY
February 13, 1974
Listed below as of February 13, 1974, are the swap arrangements
concluded on behalf of the Federal Reserve System with foreign banks.
Amount of
Agreement
Maturity of
(millions of
latest aurhotized
Foreign Bank
dollars)
renewal
Austrial National Bank
250
December 3, 1974
National Bank of Belgium
1,000
March 29, 1974
Bank of Canada
2,000
December 27, 1974
National Bank of Denmark
250
December 27, 1974
Bank of England
2,000
December 3, 1974
Bank of France
2,000
December 27, 1974
German Federal Bank
2,000
December 27, 1974
Bank of Italy
3,000
December 31, 1974
Bank of Japan
2,000
December 3, 1974
Bank of Mexico
180
December 3, 1974
Netherlands Bank
500
December 27, 1974
Bank of Norway
250
December 3, 1974
Bank of Sweden
300
December 3, 1974
Swiss National Bank
1,400
December 3, 1974
B.I.S.
1,850 ( 600)
December 3, 1974
(1,250)1/
December 3, 1974
Total
18,980
1/ This reciprocal arrangement provides for swaps of dollars against
authorized European currencies other than Swiss francs.
STRICTLY CONFIDENTIAL (FR)
- 2 -
As of February 13, 1974, drawings on the above arrangements
are outstanding in the amounts indicated below:
Drawings Outstanding on Swaps
Date since
facility has
Initiated
Initiated
been in con-
Arrangements with
by System
by foreign bank
tinuous use
(millions
of dollars
equivalent)
National Bank of Belgium
262
:
June 30, 1970
Swiss National Bank
371
:
May 19, 1971
B.I.S. (Swiss francs)
600
:
August 12, 1971
Total
1,233
FORD & LIBRARY GERALD
STRICTLY CONFIDENTIAL (FR)
SWAP ARRANGEMENTS BETWEEN THE SYSTEM
LIBRARY GERALD R. FOR
AND FOREIGN CENTRAL BANKS
March 13, 1974
Listed below as of March 13, 1974, are the swap arrangements
concluded on behalf of the Federal Reserve System with foreign banks.
Amount of
Agreement
Maturity of
(millions of
latest aurhotized
Foreign Bank
dollars)
renewal
Austrial National Bank
250
December 3, 1974
National Bank of Belgium
1,000
March 29, 1974
Bank of Canada
2,000
December 27, 1974
National Bank of Denmark
250
December 27, 1974
Bank of England
2,000
December 3, 1974
Bank of France
2,000
December 27, 1974
German Federal Bank
2,000
December 27, 1974
Bank of Italy
3,000
December 31, 1974
Bank of Japan
2,000
December 3, 1974
Bank of Mexico
180
December 3, 1974
Netherlands Bank
500
December 27, 1974
Bank of Norway
250
December 3, 1974
Bank of Sweden
300
December 3, 1974
Swiss National Bank
1,400
December 3, 1974
B.I.S.
1,850 ( 600)
December 3, 1974
(1,250)1/
December 3, 1974
Total
18,980
1/ This reciprocal arrangement provides for swaps of dollars against
authorized European currencies other than Swiss francs.
STRICTLY CONFIDENTIAL (FR)
- 2 -
As of March 13, 1974, drawings on the above arrangements
are outstanding in the amounts indicated below:
Drawings Outstanding on Swaps
Date since
facility has
Initiated
Initiated
been in con-
Arrangements with
by System
by foreign bank tinuous
use
(millions
of dollars
equivalent)
National Bank of Belgium
262
--
June 30, 1970
Swiss National Bank
371
--
May 19, 1971
B.I.S. (Swiss francs)
600
--
August 12, 1971
German Federal Bank
120
--
February 28, 1974
Total
1,353
1
GERALD R. FORD
STRICTLY CONFIDENTIAL (FR)
SWAP ARRANGEMENTS BETWEEN THE SYSTEM
AND FOREIGN CENTRAL BANKS
May 15, 1974
Listed below as of May 15, 1974, are the swap arrangements
concluded on behalf of the Federal Reserve System with foreign banks.
Amount of
Agreement
Maturity of
(millions of
latest authorized
Foreign Bank
dollars)
renewal
Austrian National Bank
250
December 3, 1974
National Bank of Belgium
1,000
March 29, 1974
Bank of Canada
2,000
December 27, 1974
National Bank of Denmark
250
December 27, 1974
Bank of England
3,000
December 3, 1974
Bank of France
2,000
December 27, 1974
German Federal Bank
2,000
December 27, 1974
Bank of Italy
3,000
December 31, 1974
Bank of Japan
2,000
December 3, 1974
Bank of Mexico
180
December 3, 1974
Netherlands Bank
500
December 27, 1974
Bank of Norway
250
December 3, 1974
Bank of Sweden
300
December 3, 1974
Swiss National Bank
1,400
December 3, 1974
B.I.S.
1,850 ( 600)
December 3, 1974
(1,250)1/
December 3, 1974
Total
19,980
1/ This reciprocal arrangement provides for swaps of dollars against
authorized European currencies other than Swiss francs.
FORD i
STRICTLY CONFIDENTIAL (FR)
- 2 -
As of May 15, 1974, drawings on the above arrangements
are outstanding in the amounts indicated below:
Drawings Outstanding on Swaps
Date since
facility has
Initiated
Initiated
been in con-
Arrangements with
by System
by foreign bank
tinuous
use
(millions
of dollars
equivalent)
National Bank of Belgium
262
:
June 30, 1970
Swiss National Bank
371
:
May 19, 1971
B.I.S. (Swiss francs)
600
:
August 12, 1971
German Federal Bank
365
:
February 28, 1974
Total
1,597
FORD is LIBRARY GERALD
THE BOARD OF FEDERAL OF GOVERNORS: RESERVE SYSTEM
FEDERAL RESERVE
press release
For Immediate Release
August 29, 1975
The Federal Reserve announced today that its reciprocal currency
"swap" arrangement with the Bank of Mexico has been doubled, bringing the
total of that arrangement to $360 million.
The increase enlarges the System's swap network with 14 central
banks and the Bank for International Settlements to $20.16 billion.
A swap arrangement is a renewable, short-term facility under which
a central bank agrees to exchange on request its own currency for the currency
of the other party up to a specified amount over a limited period of time.
The Federal Reserve swap network was initiated in 1962. In all
reciprocal currency arrangements the Federal Reserve Bank of New York acts
on behalf of the Federal Reserve System under the direction of the Federal
Open Market Committee.
The Federal Reserve's reciprocal currency arrangements are now as
follows (in millions of dollars):
Austrian National Bank
$ 250
National Bank of Belgium
1,000
Bank of Canada
2,000
National Bank of Denmark
250
Bank of England
3,000
Bank of France
2,000
GERALD FORD LIBRARY
German Federal Bank
2,000
Bank of Italy
3,000
Bank of Japan
2,000
Bank of Mexico
360
Netherlands Bank
500
Bank of Norway
250
Bank of Sweden
300
Swiss National Bank
1,400
Bank for International Settlements
Swiss francs/dollars
600
Other Europeon currencies/dollars
1,250
Total
$20,160 million
-0-
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Office Correspondence
Date September 13, 1976
To Chairman Burns
Subject:
From Charles J. Siegman CJS
Attached as requested is a copy of a July 1968 letter by
Henry Fowler to Chairman Martin on the swap arrangements, that deals
with the question of take-out and use of reserves by the United States.
(Although the enclosed letter is labelled "Draft", as noted on top
of the letter, this is the letter that was signed by Secretary Fowler
on July 23, 1968).
I also am enclosing a copy of a July 1974 letter by you
to Secretary Simon regarding the possibility of financial assistance
includes
to Italy in which a specific reference (in the next to final paragraph
on page 2) to the need for firm take-out provisions by Italy.
Attachments.
FORD & BERALD LIBRARY
Swappla
BOARD OF GOVERNORS
B
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D.C. 20551
THE FEDERAL
RESERVE
July 15, 1968.
CONFIDENTIAL (FR)
TO:
Federal Open Market Committee
FROM: Mr. Holland
Attached is a copy of a revised draft letter from the
Secretary of the Treasury to Chairman Martin concerning Treasury
backstop facilities for Federal Reserve swap arrangements.
This letter is a revision of the earlier draft letter
dated June 7, 1968, which was sent to members of the Committee
under date of June 25, 1968, and represents the product of a
meeting of Treasury and Federal Open Market Committee officials
on July 15, 1968. The matter is being placed on the agenda for
consideration at the Committee meeting on July 16, 1968.
pt e Head
Robert c. Holland, Secretary,
Federal Open Market Committee.
Attachment
GERALD FORD JERARY
DRAFT: July 15, 1958
STRICTLY CONFIDENTIAL
(Draft of proposed letter from Secretary Fowler to Chairman Martin)
Signed & dated by
Dear Mr. Chairman:
Secy Forder asses 7/23/63
On several occasions in recent months, representatives of FOMC
mean
the Federal Open Market Committee have discussed with the
older
Treasury the problem that arises when drawings under reciprocal
currency arrangements reach maturity without a reversal of the 7/16/65 of
mution
funds covered.
(pase
Federal Reserve drawings under its reciprocal credit
14)
facilities are made to provide foreign central banks who are
unwilling to hold new dollar acquisitions on an uncovered
basis with a temporary alternative to holding uncovered dollars
on one hand or, on the other, purchasing gold from the United
States or requiring the United States to purchase the surplus
dollars through recourse to the International Monetary Fund.
Drawings have generally been restricted to situations in which
there was a reasonable hope for a reversal of the flows of
funds so that the Federal Reserve would be able to acquire
the necessary foreign exchange to liquidate the commitment
in timely fashion. It has always been clearly established
policy on both sides that Federal Reserve use of such credit
arrangements is appropriate for only limited periods of time;
current policy, as generally understood, calls for repayment
within one year, if not earlier.
FORD
GERALD
- 2 -
There have been occasions, however, when such reversals
did not materialize. On these occasions, arrangements have
regularly been made by the System and the Treasury under which
the United States used its basic reserve resources of gold,
drawings on the International Monetary Fund, and the issuance
of Treasury foreign currency-denominated securities to meet
the problem which arises when the cover granted by the swap
drawing is withdrawn
Naturally the Federal Reserve wishes to maintain the
essentially short-term character of its swap drawings and
must always be in a position to honor at maturity any com-
mitments it has undertaken under its reciprocal currency
arrangements in cases where flows of funds to its swap
partners do not reverse themselves within the appropriate
period. Accordingly, the Treasury will stand ready, as in
basic reserve
the past, to use the/resources of the United States to the
extent required and in the combination most suited to the
interests of the United States that can be negotiated to
obtain and provide to the Federal Reserve the foreign
currencies needed.
QERALD R.FORD LIBRABA
In light of this understanding, and in view of the
fact that swap drawings by the Federal Reserve, while initially
conserving the reserves of the United States, may, if not
reversible by market forces, necessitate a use of such reserves
in connection with the repayment of such drawings, it is
- 3 -
appropriate that there should continue to be consultation
between the Treasury and the Federal Reserve on the use of
swaps. This purpose can no doubt be accomplished through
a continuation, and if necessary intensification, of the
consultative procedures already developed by representatives
of our two agencies concerning use of the swaps.
7/7 GERALD ? FORD
CHAIRMAN OF THE BOARD OF GOVERNORS
FEDERAL RESERVE SYSTEM
WASHINGTON, D.C. 20551
FEDERAL B
July 16, 1974
CONFIDENT \L (FR)
The Honorable William E. Simon
Secretary of the Treasury
Department the Treasury
Washington, ). C.
Dear Bill:
In view of the possibility that you may be engaging in
talks about the provision of financial assistance to Italy, I am
writing on behalf of the Federal Open Market Committee to
clarify the status of the $3 billion reciprocal currency arrange-
ment (swap line) between the Federal Reserve System and the
Bank of Italy.
The swap facility can be drawn on subject to the conditions
and limitations arising from its nature and purpose. It has always
been understood by both central bank parties to the swap arrange-
ment that swap drawings are available only to meet short-term
needs. Drawings are normally made for a period of three months,
and while they may sometimes be renewed, it is in no case
envisaged that they will remain outstanding for longer than one
year. Therefore the swap line cannot be used to make any
contribution to medium-term or long-term financing needs.
In present circumstances, recognizing that
(a) the Italian authorities now appear to be taking
substantial actions toward bringing about
needed adjustments in the domestic Italian
ecc nomy and in the Italian balan e of payments,
and that
GERALD FORD LIBRARY
The Honorable William E. Simon
July 16, 1974
Page 2
(b) some time may be needed to arrange an
appropriate package of external financial
assistance for Italy,
the Federal iserve System would be prepared to allow the Bank
of Italy to me .0 some use of Its swap line for interim, short-term
financing purposes.
We b ve had no specific discussions with the Bank of Italy
about this. ut, for your information, the Federal Open Market
Committee which decides these matters has been thinking along
the following lines. It would be appropriate for the Bank of Italy --
in anticipation of obtaining longer-term financing -- to draw, say,
$250 million initially, and to draw up to an additional $250 million
subject to conditions to be specified. such as that Italy obtain
commensurate amounts on comparable terms from other sources,
including other central banks and particularly the U.S. Exchange
Stabilization Fund. It would be expected that these drawings Would
be repaid within three months, subject to periodic extensions, if
necessary, up to one year.
For any drawings by the Bank of Italy on the System beyond
$500 million, the Committee would expect, in addition to commen-
surate Italian drawings on other sources, that firm take-out
provisions would be negotiated (c. S., by the pledge of proceeds
from prospective IMF drawings or of gold collateral), so that the
repayment of such swap drawings within one year would be assured.
I am sure you will agree that
would be helpful if you were
to note, should the subject of the Sys
's swap arrangements
arise in your talks, that decisions CC orning these arrangements
are in the province of the Federal Open Market Committee.
Sincerely yours,
Arthur F. Burns
GERALD P. FORD
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BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Office Correspondence
Date December 14, 1976
To Chairman Burns and Governor Wallich
Subject: Maturity Limitation on Foreign
From Gary M. Welsh
6WO
Currency Swap Arrangements.
You have requested the Legal Division's opinion on whether
there are any legal limitations on the maturity of swap arrangements
entered into by the Reserve Banks pursuant to the direction of the FOMC.
A search of Legal Records has revealed a memorandum dated
May 28, 1962 from Howard Hackley, General Counsel to the FOMC that deals
with this specific question (a copy of this memorandum is attached).
In his memorandum (Item 3) Mr. Hackley concluded that--
"There is no statutory restriction upon the length
of maturity of accounts that may be maintained by
a Reserve Bank with a foreign bank; and if it can
be established that such a medium term swap arrangement
is necessary or desirable in order to effectuate
open market transactions in foreign currencies,
I would feel that it would be subject to no greater
legal objection than a short term 90-day swap such
as that already made with the Bank of France.
However, the length of the commitment might make
it more difficult as a matter of degree to establish
DERALD FORD LIBRARY
that the arrangement is related to the effective
conduct of such open market transaction. It is
of course, possible that arrangements of this kind
might be subject to question on policy grounds."
The Legal Divison has reviewed relevant statutory provisions
supporting swap arrangements (see Mr. Hackley's memorandum to the FOMC
of November 22, 1961) and sees no reason to disagree with Mr. Hackley's
conclusions as expressed above. The Division would note, however, that
there are specific statutory maturity limitations on bills of exchange
and acceptances that can be purchased by Reserve Banks through accounts
maintained with foreign banks (§ 14 (e) of the Federal Reserve Act)
In addition, of course, Section 12A of the Federal Reserve Act prescribes
that the "time, character and volume of all purchases and sales of paper
described in Section 14 of this Act as eligible for open market operations
shall be governed with a view to accommodating commerce and business
and with regard to their bearing upon the general credit situation of
the country." [Emphasis added]
These limitations do not appear to apply to cable transfers (§ 14 (a)
of the Federal Reserve Act) which are the medium through which the Reserve
Banks may acquire or dispose of holdings of foreign currency in the
form of balances with foreign banks.
Tatum
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CONFIDENTIAL (FR)
Federal Open Market Committee
Subject: Legal aspects of proposed
Howard H. Hackley, General Counsel arrangements with foreign banks
HAVE
Mr. Coombs' memoranda of May 16, May 21, May 22, and May 23,
1962, discuss possible arrangements with the Bank of England, the
Nederlandsche Bank, the Swiss National Bank, and the National Bank of
Belgium, respectively. Certain possible legal questions are alluded
to in these memoranda.
(1) With respect to a possible swap arrangement with the
Bank of England, discussed in Mr. Coombs' memorandum of May 15, I
see no legal question. I assume that the arrangement would be
generally similar to the 90-day swap with the Bank of France.
(2) Mr. Coombs' memorandum of May 21 refers to the possibility
that Federal Reserve holdings of guilders with the Nederlandsche Bank
might be placed in a guilder time deposit with the BIS. If this should
be desired, it would of course be necessary for the Board of Governors,
pursuant to section 214.5(a) of Regulation N, to designate the BIS as
a foreign bank with which an account payable in foreign currency may
be maintained. Question might be raised as to whether any negotiation
or agreement between the New York Reserve Bank and the BIS with respect
to such account would fall within section 214.5(b) of Regulation N
so as to be subject to authorizations, directions, and regulations of
the Federal Open Market Committee (instead of the Board of Governors),
since it might appear that the time account with the BIS would not be
utilized for open market operations in foreign currency. In my opinion,
however, where an account is opened with a foreign bank, in this case
the Nederlandsche Bank, for the purpose of facilitating foreign exchange
operations, and where a part of that account not needed for current
operations is invested in a time account with another foreign bank,
such investment may be regarded as related to the effective conduct of
such open market transactions. Accordingly, I would see no legal ob-
jection to the proposed time deposit with the BIS.
(3) Mr. Coombs' memorandum of May 22 raises a question
whether a "medium term credit arrangement" with the Swiss National
Bank would be legally warrented. I assume that such an arrengement
would contemplate reciprocal deposits between the New York Reserve Bank
and the Swiss National Bank under a commitment running for five years
or longer. There is no statutory restriction upon the length or maturity
FORD
GERALD
LIBRARY
Federal Open Market Committee
-2-
of accounts that may be maintained by a Reserve Bank with a foreign
bank; and if it can be established that such a medium-term swap
arrangement is necessary or desirable in order to effectuate open market
transactions in foreign currencies, I would feel that it would be sub-
ject to no greater legal objection than a short-term, 90-day swap such
as that already made with the Bank of France. However, the length of
the commitment might make it more difficult, as a matter of degree,
to establish that the arrangement is related to the effective conduct
of such open market transactions. It is of course possible that an
arrangement of this kind might be subject to question on policy grounds.
(4) In Mr. Coombs' memorandum of May 23, regarding discussions
with the National Bank of Belgium, mention is made of a suggestion
that funds with that bank might be invested in notes of a Belgian
company engaged in providing credits to commerce and industry. It may
be questionable whether such investment would be clearly authorized;
but I understand that this question is now academic. As to the sug-
gestion that Federal Reserve holdings of Belgian francs be placed in
a time deposit with the BIS, the considerations mentioned above with
respect to the Nederlandsche Bank arrengement would be equally applicable.
GERALD FORD LIBRARY