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    "ocrText": "The original documents are located in Box B2, folder \"Balance of Payments (4)\" of the\nArthur F. Burns Papers at the Gerald R. Ford Presidential Library.\nCopyright Notice\nThe copyright law of the United States (Title 17, United States Code) governs the making of\nphotocopies or other reproductions of copyrighted material. Gerald R. Ford donated to the United\nStates of America his copyrights in all of his unpublished writings in National Archives collections.\nWorks prepared by U.S. Government employees as part of their official duties are in the public\ndomain. The copyrights to materials written by other individuals or organizations are presumed to\nremain with them. If you think any of the information displayed in the PDF is subject to a valid\ncopyright claim, please contact the Gerald R. Ford Presidential Library.\nBOARD OF GOVERNORS OF THE\nFEDERAL RESERVE SYSTEM\nDATE: May 10, 1971\nTO:\nCHAIRMAN BURNS\nFROM: ROBERT C. HOLLANDA\nBA\nAttached is a memo from David Hexter that\ntries to summarize briefly the issues\ninvolved in the question of the relation\nof U.S. anti-trust laws to our balance\nof payments. It is the final paragraph\non page 3 that seems to me to give us\nthe basis for an early letter. I have\nasked Hexter to try drafting such a\nletter.\nAfter you read this memo, a discussion\nsession between you and the staff group\ncould be helpful, I think, to guide both\nthe letter and the follow-up study.\nAttachment\nFORD i LIBRARY GERALD\nDRAFT\nDBH:rj\n5/3/71\nU.S. Antitrust Laws and the Balance of Payments.\nI. Potential benefits to BoP from changes in the antitrust laws (and their\ninterpretation and application).\nA. Are the antitrust laws a major impediment to effective competition\nby U.S. enterprises with foreigners (1) in the U.S. or (2) abroad?\nIn discussing this subject, sometimes there is a tendency to focus\nsolely on the ability of U.S. business to export its products.\nActually, U.S. competition with foreigners takes at least four forms:\n1. Competing abroad, using goods produced in U.S.\n2. Competing abroad, using goods produced abroad by sub-\nsidiaries of U.S. enterprises (\"multinational corporations\").\n3. Competing in U.S. markets against imported goods.\n4. Competing in U.S. markets against goods produced in U.S.\nby subsidiaries of foreign enterprises (\"multinational\ncorporations\").\nFrom the BoP standpoint, categories 2 and 4 are less significant than\ncategories 1 and 3, because the former affect the BoP only to the\nextent of the profits that are transmitted to the U.S. parent (cate-\ngory 2) or the foreign parent (category 4). Categories 1 and 3 have\na BoP effects measured by a major part of the selling price of the\ngoods (as well as having a material effect - favorable in one case,\nunfavorable in the other - on U.S. employment). Over the long run,\nU.S. investment abroad or foreign investment in the U.S. may have a\nlarge effect (witness the $5 billion (net) the U.S. receives annually\nfrom investments abroad), but our BoP problem requires focus on shorter\nterm effects.\nAccording to a 1964 report of the Subcommittee on Antitrust of the\nSenate Judiciary Committee, at hearings during the preceding year\n\"witnesses from the State, Commerce and Justice Departments all testi-\nfied that there was no evidence that our antitrust laws had inhibited\nthe activities of American firms abroad.\" (\"Antitrust Developments in\nthe European Common Market\", p. 57) Although that testimony dealt with\n\"activities\nabroad\", the antitrust laws would hardly be a greater\nobstacle to competition against imports in U.S. markets.\nThe core question is whether the impediments to U.S. competition with\nFORD LIBRARY is 076839\nforeign-produced goods derive crucially from the restraints of our\nantitrust laws. To a large extent, the problem is one of price com-\npetition. It may be argued that the cost of U.S. products could be\nsubstantially\nreduced\neconomics\nthat\ncould\nthrough\n\"cooperation\" by U.S. producers along such lines as combining their\nresearch and development efforts; patent arrangements; unified\n-2-\npurchasing, selling, and shipping; division of markets; and so on.\nEven if this is conceded, however, it may be that the demonstrated\nability of foreigners to undersell U.S. producers in important fields\nstems from lower labor costs (and to a lesser extent, from more\nefficient modern plant) to such a degree that no attempts to give\ncountervailing advantages to U.S. producers, such as relaxation of\nantitrust, could redress the imbalance.\nB. What changes in antitrust laws are needed to enable U.S. enterprises\nto command a substantially larger share of the markets in which they\ncompete with foreigners (either here or abroad) ?\nIf the conclusion on the preceding question (\"A\") is that the anti-\ntrust laws are not a major impediment to effective competition with\nforeigners - that no changes in those laws would materially increase\nthe U.S. share of relevant markets - this question \"B\" need not be\ndealt with. However, if the opposite conclusion is reached, or ques-\ntion \"A\" is deliberately left unresolved, this matter must be considered.\nIt is improbable that material BoP benefits could be expected from any\nbut radical relaxations of antitrust laws. For over a half century,\nwe have had the Webb-Pomerene Act, designed to enable U.S. business\nto increase export sales through activities that otherwise would con-\ntravene the antitrust laws. That Act has been used relatively little,\nand experts have concluded that it offers few benefits, if any, with\nrespect to export trade.*\nIt seems, therefore, that if relief is available at all through the\nantitrust route, it would necessarily be through permitting U.S. busi-\nness to combine \"in restraint of trade\" in U.S. operations not related\nprincipally to export trade. Prima facie, it seems unlikely that\nexemptions from provisions of the Sherman and Clayton Acts could be\ntailored so as to confine their effect to competition with foreign\norganizations; this seems obvious from the nature of the potential\nrelaxations mentioned in the last paragraph of \"A\". If that is so,\nwe must evaluate proposals to repeal the antitrust laws in fundamental\nrespects.\nAny suggestion and action along these lines doubtless would be confined\nto industries found (by Congress, the Department of Justice, or other-\nwise) to be in particular need of relief from the effects of foreign\ncompetition - for example, industries or \"product areas\" in which a\nspecified percentage of the domestic market has been captured by foreign\ncompetitors in the preceding year.\n\"You get all the protection under the antitrust laws themselves that you get\nunder the Webb-Pomerene Act.\" Thurman Arnold, former U.S. Judge and former\nAssistant Attorney General (Antitrust Division), testifying in hearings on\n\"Foreign Trade and the Antitrust Laws\" before the Antitrust Subcommittee of the\nSenate Judiciary Committee (88th Cong., July 23, 1964) 130.\nBERRED FORD LIBRARA\n-3-\nII. Potential \"costs\" of changes in antitrust laws aimed at improving U.S. BoP.\nA. It is our national position, embodied in such laws as the Sherman and\nClayton Acts, that the welfare of the United States is promoted by\nvigorous economic competition, and that monopoly, oligopoly, and carteliza-\ntion are inimical to our national welfare. Unless this premise is now\nto be reexamined, evaluation of proposals to relax the antitrust laws\nmust accept the fact that any BoP advantages would be gained at the cost\nof the benefits secured and safeguarded by our policy favoring vigorous\ncompetition in \"trade or commerce among the several States, or with\nforeign nations\".\nB. Reasoned evaluation of the cost/benefit equation is possible only on the\nbasis of a fairly explicit plan. As previously mentioned (\"I.B.\"), it\nseems unlikely that useful antitrust relaxations could be confined to\nour competition against foreign enterprises. In the first place, an\nincreasingly important part of that competition relates to the impact\nof imports on our domestic markets, which could hardly be compartmentalized.\nBut even if the relaxations were aimed solely at improving the competitive\nposition of U.S. exports, it is doubtful whether we could devise any\nmaterially significant changes in the antitrust laws that would aid our\nexport trade without affecting also competition among U.S. producers in\ndomestic markets.\nC. Can the antitrust laws be relaxed in specific ways that would enhance\nthe ability of U.S. industry to compete successfully with foreign enter-\nprises without destroying our general antitrust policy? To an inexpert\n- GERALD FORD LIBRARY\nobserver, this seems improbable, but the problem can be solved - if at\nall - only by imaginative and courageous experts in the antitrust field.\nOnly such experts could marshal the practicable alternatives and combina-\ntions of governmental action and decide intelligently whether the desired\nresult could be achieved by relaxations that would not destroy the sub-\nstance of U.S. antitrust policy.\napparent\nD. Let us assume that (1) contrary to the/probabilities, changes could be\nmade in the antitrust laws that would enable U.S. businesses to compete\nsubstantially more successfully against foreign businesses, but (2) that\nresult could be achieved only by scrapping our antitrust policy and\npermitting practices of the sort adopted in countries that have opted\nfor cartelization or \"cooperation\" rather than vigorous competition of\nthe sort fostered by our antitrust laws. This presents squarely the\nultimate question, which cannot be \"quantified\" but must be answered on\nthe basis of intuition - whether the expectable advantages to the U.S. BoP\noutweigh the disadvantages to be anticipated from abandonment of antitrust\nas a national policy.\nIn considering this subject, one must keep in mind that the Sherman Act (1890)\nand Clayton Act (1914) were designed for a local, a regional, or - at most -\na nationwide arena in which all competitors were governed by the same anti-\ntrust rules. Today we have, increasingly, a worldwide arena, in which\nforeign competitors are not effectively governed by the U.S. antitrust\nlaws. This change may provide the most plausible ground for contending\nthat to relax our antitrust laws would not be a rejection of the policy\nfavoring vigorous competition, but only a recognition of a changed economic\nenvironment in which survival depends on the ability of U.S. business to\ncompete with rivals who are not restrained by the same rules.\n6\nMay 14, 1971\nTRADE BALANCES OF THE UNITED STATES WITH\nPRINCIPAL FOREIGN AREAS\n(millions of dollars, balance of payments basis)\n1960\n1961\n1962\n1963\n1964\n1965\n1966\n1967\n1968\n1969\n1970\nTrade balance, total\n4,906\n5,588\n4,561\n5,241\n6,831\n4,951\n3,926\n3,860\n624\n638\n2,185\nWestern Europe\n2,549\n2,787\n2,602\n2,880\n3,377\n2,682\n1,914\n1,581\n336\n1,424\n2,926\nUK\n4.66\n294\n147\n173\n468\n214\n-24\n162\n-116\n-86\n307\nEEC\n1,296\n1,015\n151\n1,031\n1,740\n2,083\n2,493\n2,455\n2,707\n2,909\n2,468\n}\nOther\n642\n404\n301\n479\n889\nCanada\n1,024\n790\n566\n571\n776\n865\n801\n448\n-451\n-815\n-1,644\nAutomotive trade\n389\n363\n460\n500\n535\n638\n429\n318\n60\n-408\n-765\nOther\n635\n427\n106\n71\n241\n227\n372\n130\n-511\n-407\n-879\nJapan\n225\n710\n180\n320\n200\n-388\n-634\n-345\n-1,110\n-1,390\n-1,241\nOther Developed Countries\n407\n218\n120\n194\n555\n623\n336\n474\n460\n299\n457\nOther\n701\n957\n1,093\n1,276\n1,923\n1,395\n1,509\n1,702\n1,389\n1,120\n1,687\n1/ Australia, New Zealand, South Africa\n2/ Includes international organizations.\nGERALE FORD LIBERRY\nfame letter the President\nMay 19, 1971\nSTRICTLY CONFIDENTIAL (FR)\nDear John:\nThe international monetary crisis is not over. It is therefore\nhighly important to plan ahead.\nIf things come to the pass of a U.S. suspension of gold sales\nand purchases, we should do all we can--both substantively\nand sosmetically--to make it appear that other governments\nhave forced the action on us. We want to portray suspension\nas a last resort and to present a public image of a cool-headed\ngovernment responding to ill-cônceived, self-defeating actions\nof others.\nThe opposite tack-initiating suspension without being forced\nto it by the actions of others--would probably leave us in a\nmuch weaker bargaining position for post-suspension negoti-\nations. Many foreign governments would claim that the U.S.\nGovernment had been eager to throw down the gauntlet, and\nhad done so with insufficient excuse. In the public eye, both\nhere and abroad, a large part of the onus for the ensuing\nperiod of crisis would probably fall on us. In such a hostile\nenvironment, it might be significantly less likely that we could\nnegotiate limited exchange-rate flexibility, a more equitable\nsharing of aid and defense burdens, and other important U.S.\nobjectives.\nIt is therefore desirable to pay out gold and other reserves\nin substantial amounts--perhaps two billion dollars--before\na suspension. In any announcement of suspension, moreover,\nVORD & LIBRARY GERALD\n-2-\nSTRICTLY CONFIDENTIAL (FR)\nextensive albeit low-keyed publicity should be given to the\nactions of those countries purchasing gold in the weeks\nprior to suspension. There is little reason for believing\nthat the United States would be significantly better off after\nsuspension with, say, $10-1/2 billion of gold rather than\nwith, say, $8-1/2 or $9 billion. The balance of advantages,\ntherefore, is very strongly in favor of paying out reserves\nfor an interim period before closing the gold window.\nOne of our main post-suspension bargaining chips (i.e., a\nconcession to give to other governments) would be an agree-\nment to restore dollar convertibility (into gold and SDRs) as\npart of a package resolution of the crisis. If anything, this\nbargaining chip would have a higher value if we wait to suspend\nuntil it seems to be forced on us by the actions. of others.\nSincerely yours,\nArthur F. Burns\nThe Honorable John Connally\nSecretary of the Treasury\nDepartment of the Treasury\nWashington, D.C.\nCopy to: The President\nGERALD FORD VIBRARY\nkoLa\nFor release on delivery\nStatement by\nFred H. Klopstock\nManager, International Research Department\nFederal Reserve Bank of New York\nbefore the\nSubcommittee on International Exchange and Payments\nof the\nJoint Economic Committee\nJune 22, 1971\nFORD is LIBRARY 668470\nIt is a pleasure and a privilege to appear before this distinguished\nCommittee which has made such an important contribution to the public's under-\nstanding of the international financial mechanism. Your committee has already\nadded substantially to our knowledge of the subject under review this afternoon\nby commissioning the intensive study of the Eurodollar market that was prepared\nby Ira 0. Scott, Jr. who was at that time Professor of Finance and Dean of the\nArthur T. Roth School of Business Administration at the C.W. Post Center of Long\nIsland University. This highly informative study, which your parent committee\npublished last year, provides a full description of the Eurodollar market, how\nit operates, its structure and the policy questions its existence has raised.\nTherefore, with your permission, I will skip over the history of the market and\nits functioning, and instead will focus on some problem areas of the market that\nhave recently surfaced. I would like to comment in particular on those aspects\nof the market that continue to puzzle and worry the international financial community.\nIn this context I plan to comment briefly on the implications of the phenomenal\ngrowth of the Eurodollar market for the international position of the dollar,\nand on some proposals for the supervision and control of the market.\nThere is no doubt in my mind that the Eurodollar market has made a\nmajor contribution to the financing of economic growth in this past decade.\nPerhaps its outstanding merit is that it has enabled banks outside the U.S.--\nincluding the overseas branches of U.S. banks--to draw huge amounts of balances\noriginating in many parts of the world into the financing of international trade\ntransactions and the operations of large private and public corporations. The\nmarket has become a funnel through which temporarily unemployed funds in virtually\nall parts of the world are quickly and efficiently transmitted to banks in major\nGERALD FORD LIBRARY\n2\nfinancial centers and, through them, to borrowers in need of loan accommodation.\nIt has added immensely to the ability of banks in Europe, Canada and even in the\nUnited States through their overseas branches to provide financing of their\ncustomers at advantageous rates. The Eurodollar market has been an efficient\ntransmission belt for the movement of vast amounts of funds from low interest to\nhigh interest rate countries and has made a major contribution to evening out\nsurpluses and shortages in national money markets.\nIt is nevertheless true that many central bankers and other members of\nthe international financial community have become increasingly disenchanted with\nthe market. Many close observers of the market are appalled by its huge dimensions,\nand fearful of its proven ability to set into motion capital flows that are capable\nof undermining domestic monetary policies. While not disregarding the market's\nvaluable contributions to the financing of world trade they increasingly have come\nto look upon the huge capital movements associated with it as a major source of\ndomestic and international monetary instability.\nThe market is also often severely criticized because it has financed\nspeculative attacks on currencies that are vulnerable and speculative flows into\ncountries whose currencies are candidates for revaluation. In view of the market's\ngigantic size and the destabilizing capital flows which it has financed, a prominent\ncentral banker recently referred to the Eurodollar market as a \"monster\". Other\nEuropean central bankers have suggested that much of the Eurodollar market's\nexplosive growth is due to multiple credit creation within the market and that\nthis uncontrolled credit expansion has been an important factor in furthering\nFORD is LIBRARY GERALD\nworld inflation.\nSeveral central bankers, notably Governor Carli of the Bank of Italy,\nhave called for control of the Eurodollar market. Federal Reserve Board Chairman\nArthur Burns has warned against the practice of central banks' recycling their\n3\nreserve gains into the market. The market has increasingly become a source of\nmedium-term loans to borrowers in many corners of the world, but these loans\nare almost entirely financed with short-term money, often under terms and conditions\nthat have caused a number of prominent commercial bankers to raise questions about\nthe quality of credit in the market.\nThere is thus a great deal of evidence that many leaders of the international\nfinancial community are deeply worried over recent developments in the market. I\nbelieve some of this concern is justified, but it is also true that the central\nbank community is making a major cooperative effort to prevent the market from\nundermining international monetary stability and at the same time to retain and\nstrengthen the market's valuable role in the financing of a large variety of the\nworld's credit needs.\nWith your permission, I will now briefly comment on several of the\nmarket's aspects that have raised concern and uncertainties here and abroad.\nFirst a few words about the recent growth of the market and the fact that the\nmarket's net size now surpasses foreign liquid dollar holdings in the United\nStates.\nGERALD FORD LIBRARY\nLinkage of Market's Size to Foreign Dollar Balances in the U.S.\nDuring the past three years, the Eurodollar market has grown by leaps\nand bounds; this growth continued in 1970, contrary to expectations. Many\nobservers had felt that the market would shrink as United States banks and\ncorporations repaid their heavy Eurodollar borrowings incurred during the tight\nmoney era in 1969. However, huge borrowings by corporations in Germany in\nresponse to tight money market conditions in that country and by banks in Italy\nabsorbed the Eurodollars set free by U.S. repayments. Heavy medium-term borrowings\nby multinational corporations and public and semi-public institutions in the\nless developed countries also added significantly to the demand for Eurodollar\n4\nloan facilities. Most of the added supplies in the Eurodollar market may be\nattributed to the rapidly growing placements by central banks, primarily those\nin the less developed countries, but also by several Western European countries\nthat in the past had stayed away from the market.\nAfter making allowance for double counting arising from interbank\ndeposits within the Eurodollar area, dollar deposits in banks outside the\nUnited States now exceed $50 billion, $46 billion of this huge amount represents\ndollar deposits in eight European countries which make up the core of the Euro-\ndollar system and regularly report their dollar liabilities to the Bank for\nInternational Settlements. It is on the basis of these reports, that the BIS\ncomputes the net size of the market which reflects commercial bank liabilities\nof these eight countries vis-a-vis monetary institutions, commercial banks and\nnon-banks outside the area and vis-a-vis central banks and non-bank residents\ninside the area. But my $50 billion plus estimate also includes sizable amounts\nof similar net dollar liabilities of banks in several countries outside Europe\nthat have become increasingly important participants in the Eurodollar market,\nnotably banks in Canada, Japan and Nassau.\nAt more than $50 billion, the Eurodollar market far exceeds foreign\nliquid dollar holdings in the United States, which at the end of 1970 amounted to\n$43 billion. The market has grown much more rapidly than the dollar accruals\nto foreign accounts resulting from our balance-of-payments deficit. Some\nmembers of the financial community have expressed puzzlement over these facts and\nconcern about their implications for the dollar's international position. They\nhave expressed fear that dollar balances held in the Eurodollar market represent\na potential claim on the United States and, therefore, on our diminishing monetary\nreserves. These fears are not well founded. Only those Eurodollar deposits\nFORD & GERALD LIBRARY\n5\nthat Eurodollar banks have employed in the United States or that they retain in\nU.S. banks for reserve and transactions purposes constitute a claim on United\nStates reserves.\nPresently such balances represent no more than a small fraction of total\ndeposits employed in the market. Eurodollar deposits that are not passed on to\nUnited States banks or borrowers in the United States give rise to claims only\non the banks abroad in which they are lodged. In the event of withdrawal of\nthese deposits, the banks would have to either acquire dollars in the foreign\nexchange market or fall back upon maturing Eurodollar deposits and loans, most of\nwhich are obligations of foreign banks and corporations.\nTo many observers it appears puzzling that the market's size exceeds\nforeign liquid dollar holdings in the United States, especially since each\nEurodollar deposit involves a transfer of foreign dollar deposits from one account\nin a United States bank to another. But upon further reflection the excess of\nEurodollar deposits over U.S. liquid liabilities need not evoke surprise. The size\nof the market is not limited by outstanding foreign dollar holdings. It is\nprimarily determined by the cash holdings denominated both in domestic currencies\nand in dollars that a large variety of investors throughout the world wish to\nplace in the market. The explanation of the discrepancy between foreign liquid\nholdings in the U.S. and net holdings in the Eurodollar market is that one and\nthe same foreign-held dollar balance can be repeatedly employed for making Euro-\ndollar deposits. Dollar balances acquired by investors for placement in the\nmarket to the extent that they are not employed in the United States are almost\ninstantaneously returned to the foreign exchange market as the dollar-accepting\nbanks, or borrowers from these banks, or those to whom they make payments, convert\nFORD & GERALD LIBRARY\n6\nthese dollar balances into third currencies in foreign exchange markets. Some or\nall of these balances may be acquired by central banks. These same dollar balances,\nafter passing through the hands of several holders--possibly in several countries--\nas a result of a series of transactions outside the Eurodollar system, may again\nbecome vehicles for Eurodollar deposits as investors desirous of making additional\ndeposits reacquire them in the foreign exchange market. The repeated utilization\nof some part of the existing stock of foreign dollar balances associated with the\nrecurrent reinjections of the same dollars into the market that had previously\nbeen ejected from it also explains why the increase in the size of the market during\nrecent years far exceeds the dollar balances obtained by foreigners as a result of\nour balance-of-payments deficit.\nIt is, of course, true that certain Eurodollar placements, primarily those\nby United States residents, add to our liquid liabilities. Some Eurodollar deposits,\nnotably those that are borrowed by U.S. banks or are invested by the overseas\nbranches in U.S. Treasury or Export-Import Bank securities, as well as reserve and\ntransaction balances of Euro-banks, are reflected in our liquid liabilities. Some\nportion of foreign-held dollar balances--actually no more than a small portion--\nperforms a vehicle role in the placing of Eurodollar deposits. But the great bulk\nof Eurodollar deposits does not affect our short-term liabilities and the growth\nrates of the two magnitudes are therefore to a large extent independent of each\nother.\nGERALD R. FORD\nMultiple Credit Creation in the Eurodollar Market\nSeveral central bankers as well as some prominent members of the academic\nprofession have attributed the enormous expansion of the market to the process of\nmultiple credit creation. They have suggested that the Eurodollar system functions\nin the same way as the U.S. banking system where, as borrowers disburse loan\nproceeds, the recipients have virtually no choice but to redeposit them in the\nsame or another American bank. This bank, as a result of the attendant reserve\ngains, may find itself in a position to make additional loans and investments.\n7\nThose who believe that this phenomenon is also a characteristic of the Eurodollar\nmarket claim that a very substantial amount of Eurodollar deposits represents\nbalances that can be traced directly to Eurodollar loan proceeds. In fact, concern\nover multiple credit creation in the market has caused some of its close observers\nto support recommendations that Eurodollar borrowing be made subject to reserve\nrequirements. I have argued elsewhere that at least until the end of 1969 multiple\ncredit creation has played no more than a minimal role in the expansion of the\nEurodollar market. This argument is supported by the fact that the market\nexperienced its most impressive rate of growth in the late 1960's when most new\nEurodollar deposits were pulled out of the market by U.S. banks and corporations\nthat borrowed heavily in it. These funds were used in the United States and thus\ncould not serve as a base for multiple credit expansion in the Eurodollar market.\nIn 1970, the credit multiplier tended to increase inasmuch as several central\nbanks during the year acquired sizable dollar balances that originated in the\nFORD & LIBRARY GERALD\nEurodollar market and redeposited them in the market. But even now the great\nbulk of Eurodollar borrowings is either paid to U.S. residents or converted in\nforeign exchange markets into local and third-country currencies and not returned\nto the market by those who acquire these balances. Altogether, the available\nevidence on worldwide uses of Eurodollars suggests that only a small part of the\nproceeds of Eurodollar credit is redeposited in the market, and in my view the\nmultiplier remains only a fraction of the figures that have recently been publicized.\nCentral Bank Participation in the Market\nAnother question widely discussed by Eurodollar market participants is\nthe placement by official monetary institutions of part of their dollar holdings\nin the Eurodollar market. In any appraisal of central bank participation in the\nEurodollar market, a sharp distinction should be drawn between (a) dollar balances\nrecycled by Western European central banks that deposit part of their dollar gains\neither directly in European banks or in the Bank for International Settlements,\nKlg\n8\nand (b) deposits in European banks by monetary authorities throughout the world,\nnotably in lesser developed countries and also in Eastern Europe. According to\nthe Bank for International Settlements, during the past year central bank deposits\nin the Eurodollar market have increased by approximately $7 billion. A large\nportion of these deposits was placed by European central banks, but a very sub-\nstantial part originated in less-developed countries. Many central banks in these\ncountries, dependent as they are on the income from their exchange reserves,\nfound it difficult to resist the relatively attractive yields available in the\nEurodollar market.\nUndoubtedly, as Federal Reserve Board Chairman Arthur Burns recently\npointed out in Munich, central banks as they place funds in the Eurodollar market\nhave aggravated their own problems. Such deposits have added to the explosive\ngrowth of monetary reserves in Europe, flooded European economies with unwanted\nliquidity, expanded money supplies and thus contributed to inflationary pressures.\nThe process through which this occurs is simple. Typically, a sizable part of\nthe central bank deposits placed in Eurobanks is used for loans to European\nborrowers. These borrowers or those to whom they make payments tend to convert\nall or virtually all of their dollar borrowings into local currencies. As the\nborrowers sell dollar balances to their commercial banks, their domestic currency\ndeposits and thus their nations' money supply increase. The commercial banks--\nby selling all or part of the resulting dollar accruals to their central bank--\nare in turn in a position to add to their reserve balances and consequently to\ntheir lending capacity. In this process, the central banks, in their capacity\nas residual buyers of dollars in the foreign exchange market, in effect reacquire\nthe balances that they had placed in the Eurodollar market. According to press\nreports, the major European central banks are presently reviewing the investment\nFORD i GERALD LIBRARY\n9\nof their monetary reserves with a view toward limiting their placements in the\nEurodollar market. They are reported to be ready to withdraw balances from the\nmarket, if market conditions permit them to do SO.\nIncidentally, central bank deposits in the Eurodollar market are solely\nan obligation of the banks in which they are deposited. Taken together, they\nare not a reserve liability of the United States and do not affect our balance of\npayments.\nControl of the Market\nThe phenomenal growth of the market together with its credit creation\npotential, and its ability to mobilize massive amounts of funds that may flow\nquickly from country to country and thus undermine domestic monetary policies,\nhave given rise to demands for a comprehensive system of international control\nof the market. These demands have gained in strength in recent weeks as Euro-\ndollar balances, as has happened often in the past, have again been used on a\nlarge scale to feed speculative movements into currencies that have become\ncandidates for revaluation, notably the Deutsche mark.\nIn appraising demands for international control of the market it should\nbe kept in mind that presently the market is already subject to a large measure\nof national controls. For many years, central banks have used a variety of devices\nto regulate the flow of Eurodollars out of and into their countries. Moreover,\nfor many years, central bankers have exchanged views on their Eurodollar market\npolicies and on occasion have taken concerted action to coordinate their regulatory\nactivities in this area. At times, notably at year-ends, central banks have\nrechannelled substantial deposits into the market either directly or through the\nBank for International Settlements, with a view to smoothing out temporary\ndisturbances in the market when such action did not conflict with basic monetary\npolicy objectives then being pursued.\nFORD is GERALD LIBRARY\n10\nCentral banks are likely to strengthen their existing controls and\nsupervision of the market. As a matter of fact the central bank governors\nmeeting regularly in Basle have set up a study group to analyze the problem and\nto work out terms of reference for a standing group which might suggest policies\nto be adopted by the governors. There is thus every reason to expect that central\nbank coordination and cooperation with respect to policies affecting the Eurodollar\nmarket will become more intensive in the months and years ahead. For instance,\ncentral banks could intensify cooperation so as to avoid that national controls\nwork at cross-purposes. They might well make even greater efforts than in the\npast to coordinate their monetary policies with a view to reducing the emergence\nof large scale capital movements that do not serve their purpose. But it is\ndifficult to visualize any system of supranational control of the Eurodollar market.\nIn my personal view, central control on a worldwide scale is not a practical\nproposition. There is no international institution extant that can effectively\ncontrol the vast supplies in the market or restrict the worldwide demand for\nEurodollars. International control of the market would, moreover, call for\nGERALD FORD LIBRARY\ncomprehensive foreign exchange regulations that many countries are unwilling to\nadopt. The obstacles to control by an international institution also stem for\ndivergencies in national objectives of the countries whose banks play a major role\nin the market. Hopefully, central bank cooperation involving primarily coordination\nof national controls will serve to reduce, if not eliminate, Eurodollar flows\nthat tend to undermine international monetary stability.\nMedium-Term Lending and the Worsening of Credit Quality\nAnother recent development in the Eurodollar market is the rapid growth\nof medium-term lending of Eurodollars. During the last year or two, the overseas\nbranches and affiliates of American banks, as well as other major banks in London\nand elsewhere in Europe, have been heavily engaged in extending 5 to 8 year roll-\nover Eurodollar loans, usually to large commercial and semi-public corporations,\n11\nwith the lending rate periodically adjusted in line with the interbank rate for\nthree or six-months Eurodollars. Typically, the banks managing such loan arrange-\nments syndicate them, placing varying portions with a number of other banks and\nretaining in some cases only a small portion on their own books. Borrowers of\nmedium-term loans reside in many countries throughout the world. In order to\nserve this rapidly growing market for Eurodollar term loans, several groups of\nUnited States and European banks have established a large number of jointly owned\ninternational banks.\nIn meeting the deep-seated need for medium-term finance, the balance\nsheets of many banks operating in the Eurodollar market have become less self-\nliquidating. Of course, the fact that interest rates for these loans are period-\nically readjusted in line with prevailing Eurodollar interbank rates eliminates\nthe risk that rates in the market will run against the lender. This risk has\nbeen passed on to the borrower who hopefully is always in a position to assume\nit. The fact that the Eurodollar market, despite its dependence on purchased\nas distinct from hard-core demand deposit money, has become so large a source\nfor meeting the world's medium-term credit needs should not be overlooked in\nany assessment of its overall position.\nQuite apart from the growing maturity gap, many thoughtful bankers have\nbecome increasingly concerned over the disregard in Eurodollar banking of the\nstrict lending standards that have long been in vogue in term lending in the\nUnited States. Elaborate term loan agreements with a number of appropriately\nprotective covenants such as the obligation of the borrower to maintain his\nworking capital at minimum levels are much less common in Eurodollar banking\nthan in the United States. Few Eurodollar term loans include amortization\narrangements that provide for the tailoring of maturities in line with prospective\n-\nFORD & LIBRARY GERALD\n12\ncash flows. Single-payment revolving loans stretching over five years are not\nuncommon. It is probably true that as rapid an expansion in the number of\nborrowers as occurred during the last two years has brought into the market\nsome second class names not deserving of unsecured loan facilities.\nIt is encouraging that prominent bankers have publicly drawn attention\nto the easing of Eurodollar lending criteria. Still and all I do not believe\nthat there has been any fundamental deterioration of credit quality in the market.\nThe market continues to be dominated by the biggest and strongest banks in Western\nEurope and generally these banks remain highly selective as to the borrowers to\nwhom they extent loan facilities.\nConclusion\nIn concluding my remarks, I should like to reemphasize the important\ncontribution of the Eurodollar market to the growth of the international economy\nand the expansion of world trade. It would be most unfortunate if the widespread\ndemand for control of this market should give rise to restrictions on international\ncapital movements that would regulate it out of existence or impair its functioning\nas an efficient medium for allocating credit on a worldwide scale. Meanwhile,\nthe obvious ill-effects of the market and some undesirable deposit and loan\npractices that have recently emerged are receiving the intense attention of the\ncentral banking community and there is every reason to expect timely action to\nmaintain the fundamental soundness of the Eurodollar system.\nFORD i LIBRARY GERALD\n6/25/71\nSUPPLEMENTAL APPENDIX A: THE U.S. BALANCE OF PAYMENTS:\nREVISED PRESENTATION*\nBeginning in the June 1971 Survey of Current Business the\npresentation of the U.S. Balance of Payments accounts will be revised.\nSome of the disaggregated components of the accounts have been redefined\nand two new summary balances have been derived. The new balances are\nthe \"Balance on Current Account and Long-term Capital\" and the \"Net\nLiquidity Balance.\" The definition for the \"Official Reserve Trans-\nactions Balance\" remains unchanged. The old \"Liquidity Balance\" has\nbeen dropped.\nUnlike other macro-measures, such as the Gross National Product,\nthe \"balance\" of a set of international transactions involves a selection\nof relevant items rather than a simple summary or averaging of all avail-\nable data. No one \"balance\" can in itself measure an absolute degree of\ndeviation from some \"equilibrium\" position. The summary balances are\npresented merely to provide a not-too-misleading starting point for\ndiscussions of whether the underlying balance of payments position is\nchanging in a desirable direction or not.\nPresentation of the basic data has been reorganized so that\nthe various summary balances can be derived directly from the dis-\naggregated listing of transactions in the main balance of payments\ntables, with and without seasonal adjustment (Tables 2 and 3 in the\nJune 1971 Survey of Current Business). A new summary table has been\nintroduced (Table 1 in the Survey) which shows the relationship of each\nbalance to the others. See Table A-2 at the end of this Appendix.\nThe newly presented \"Balance on Current Account and Long-term\nCapital\" is intended to give a rough indication of trends in the U.S.\nbalance of payments apart from movements of short-term capital. This\nbalance is the sum of net export of goods and services, remittances\nand pensions, U.S. Government grants and capital, and the net flow\nof U.S. and foreign long-term capital (except to and from foreign\nofficial reserve holders.) See Table A-1, below, lines 1 through 9.\nEqually new is the presentation of a \"Net Liquidity Balance\"\nwhich is intended to be a broad indicator of trends apart from move-\nments of the more liquid types of short-term capital. This balance\nincludes not only those items that went into the balance on current\naccount and long-term capital but also changes in the nonliquid short-\nterm claims and liabilities reported by private U.S. concerns, net\n* Prepared by Kathryn A. Morisse, Economist, Balance of Payments\nSection, Division of International Finance.\nFORD & LIBRARY GERALD\nof\n-2-\nerrors and omissions, and the allocation of special drawing rights\n(SDRs). See Table A-1, line 1-17. Unfortunately, insofar as changes\nin errors and omissions reflect variations in liquid capital outflows,\ntheir inclusion detracts from the usefulness of this balance as a\nmeasure of what it is intended to measure.\nThe new \"Net Liquidity Balance differs from the old \"Liquidity\nBalance\" in two ways. First, changes in short-term liquid U.S. claims\nare now treated symmetrically with changes in U.S. liquid liabilities --\nboth are \"below the line\" for the \"Net Liquidity Balance,\" being con-\nsidered to be part of the financing of that balance. See Table A-1,\nlines 11 and 19. Since the changes in private liquid claims were above\nthe line for the old \"Liquidity Balance,\" a simultaneous increase in\nsuch claims and in U.S. liquid liabilities increased the old \"Liquidity\"\ndeficits but such a simultaneous change does not affect the new \"Net\nLiquidity Balance.\" The second difference relates to the treatment of\ncertain U.S. liabilities to foreign official reserve holders- that\nwere put into the nonliquid category in former years in order to have\na favorable impact on the old \"Liquidity Balance.\" The nonliquid lia-\nbilities involved in this type of special financial transaction have\nnow been moved below the line and a change in such liabilities therefore\nhas no impact on new \"Ne Liquidity Balance.\" See Table A-1, lines 8\nand 21.\nThe \"Official Reserve Transactions Balance\" is reached by\nadding to the \"Net Liquidity Balance\" changes in short-term liquid\nprivate U.S. claims and liabilities. See Table A-2, lines 13 through\n18. The definition of this last balance is unchanged. It is the\nbalance financed by changes (decreases) in U.S. official reserve assets\nplus changes (increases) in U.S. liquid and nonliquid liabilities to\nforeign official reserve holders. This balance is a rough proxy for\nexchange market pressures on the dollar.\nThe revised presentation of the balance of payments accounts\nreflects the results of a study begun in the fall of 1970 by the\nInteragency Committee on Balance of Payments Statistics that was set\nup by the Office of Management and Budget in recognition of the grow-\ning dissatisfaction with the balances as previously presented --\nparticularly the old \"Liquidity Balance.\"\nThe Survey of Current Business does not use the term \"reserve\nholders\" but we find it useful to distinguish such holders from other\nforeign government agencies which hold claims in the United States\nsuch as military export prepayment accounts.\nFORD & GERALD LIBRARY\n434\nGERALD\nLIBRARY\nConfidential Until Published\n6/25/71\nTable A-1\nCOMPARISON OF NEW \"NET LIQUIDITY BALANCE\"\nWITH FORMER \"LIQUIDITY BALANCE\" FOR 1970\n(in millions of dollars)\n1970\n1970 \"Liquidity Balance\"\n\"Net Liquidity\nAs published\nBalance\"\nRevised data March 1971\n1. Balance on goods & services\n+3,592\n+3,592\n+3,672\n2. Remittances & pensions\n-1,410\n-1,410\n-1,387\n3. U.S. Gov't grants & capital\n-3,332\n-3,332\n-3,235\n4.\n(of which advance repayments)\n(+244)\n(+244)\n(+243)\n5. Long-term capital\n6.\nU.S. private\n-5,781\n-5,781\n-5,233\n7.\nForeign except \"special\"\n+3,716\n+3,716\n+3,253\n8.\nForeign \"special\" 1/\n+176\n-99\n-95\n9. BALANCE ON CURRENT ACCOUNT\n& LONG-TERM CAPITAL\n-3,038\n-3,314\n-3,025\n10.\nShort-term capital\n11,\nU.S. claims, \"liquid\" (excl.\nreserve assets)\n...2/\n+273\n)\n12.\nU.S. claims, \"nonliquid\"\n-1,118\n-1,378\n-1,378\n)\n13.\nU.S. liabilities, \"nonliquid\"\n+830\n+830\n+704\n14. Errors & omissions\n-1,132\n-1,132\n-1,274\n15. BALANCE BEFORE SDR ALLOCATION\n-4,719\n-4,721\n-4,715\n16. SDR allocation\n-867\n+867\n+867\n17. BALANCE AFTER SDR ALLOCATION\n-3,852\n-3,854\n-3,848\nFINANCED BY\n18. U.S. reserve assets, decrease\n+2,477\n+2,477\n+2,477\n19. Other \"liquid\" claims, decrease (+)\n+273\n...\n...\n20. Liquid liabilities to reserve\nholders and others, increase (+)\n+1,377\n+1,377\n+1,371\n21. Other liabilities to reserve\nholders, decrease(-)\n-275\n...\n...\nMEMORANDUM ITEMS:\n22. Total Special Transactions 3/\n(+420)\n+145\n+148\n23. Balance before SDR allocation\n& before special transactions\n...\n-4,866\n-4,863\nThe figure for special transactions in column 1 differs from that in\ncolumn 2 because the decrease in \"other liabilities to reserve holders\"\n(line 21) is now treated 0888 negative financing. item whereas before it\nwas a special transaction enlarging the deficit.\n2/ Now treated as a financing item (line 19).\n3/ Sum of lines 4 and 8.\nCONFIDENTIAL (FR)\n(until published)\nJune 25, 1971\n19th\nTable A-2. U.S. BALANCE OF PAYMENTS\n(in millions dollars, seasonally adjusted)\nFORD & LIBRARY GERALD\nSource\nSCB\nYears\n1970\n1971\nJune 19711/\n1969\n1970\nQtr.1\nQtr.2\nQtr.3\nQtr.4\nQtr.1\n1.\nBalance on goods & services\nT.1 # 11\n+2,011\n+3,592\n+881\n+1,045\n+995\n+670\n+1,051\n2. Remittances & pension\nT.3 # 31,32\n-1,266\n-1,410\n-338\n-362\n-359\n-351\n-351\n3.\nU.S. Gov't grants & capital\nT.3 # 30,33\n-3,837\n-3,332\n-841\n-757\n-838\n-895\n-1,031\n4.\nLong-term capital\n5.\nU.S. private\nT.3 # 39,40,41,44\n-4,855\n-5,781\n-1,925\n-1,128\n-1,492\n-1,237\n-1,692\n6.\nForeign\nT.3 # 48,49,50,52,55\n+5,068\n+3,892\n+926\n+632\n+1,354\n+981\n+607\n7. BALANCE ON CURRENT ACCOUNT\n& LONG-TERM CAPITAL\nT.1 # 26\n-2,879\n-3,038\n-1,297\n-570\n-340\n-832\n-1,416\n8.\nShort-term capital, nonliquid\n9.\nU.S. nonliquid claims\nT.3 # 42,45\n-693\n-1,378\n-270\n-315\n-245\n-548\n-100\n10.\nU.S. nonliquid liabilities\nT.3 # 51\n+91\n+830\n+163\n+151\n+124\n+392\n0\n11.\nErrors & omissions\nT.3 # 64\n-2,603\n-1,132\n-62\n-430\n-433\n-207\n-1,268\n12.\nSDR allocation\nT.3 # 63\n--\n+867\n+217\n+217\n+217\n+216\n+180\n13.\nNET LIQUIDITY BALANCE\nT.1 # 33\n-6,084\n-3,852\n-1,250\n-945\n-679\n-977\n-2,604\n14.\nShort-term capital, liquid\n15.\nU.S. liquid claims\nT.3 # 43,46\n+124\n+273\n+257\n-81\n-15\n+112\n-232\n16.\nU.S. liabilities to commercial\nT.1 # 39\n+9,166\n-6,507\n-1,863\n-441\n-1,315\n-2,888\n-3,025\nbanks\n-504\n+265\n-9\n+65\n-68\n+277\n+338\n17.\nU.S. liabilities to other private\nT.1 # 40,41\n18.\nOFFICIAL RESERVE TRANSACTIONS\nBALANCE\nT.1 # 42\n+2,702\n-9,821\n-2,865\n-1,402\n-2,077\n-3,476\n-5,523\n19.\nFinanced by\n20.\nU.S. reserve assets, decrease (+)\n-1,187\n+2,477\n+264\n+805\n+584\n+824\n+682\n21.\nLiquid liabilities to foreign official\nagencies, increase (+)\n-517\n+7,619\n+3,021\n+97\n+1,738\n+2,763\n+5,065\n22.\nNonliquid liabilities to foreign\nofficial reserve holders, decrease (-)\n-998\n-275\n-420\n+500\n-245\n-111\n-224\n1/ Survey of Current Business, June 1971, U.S. Balance of Payments, Table 1 and Table 3.\nCHAIRMAN BURNS\nFor Information Only\nBOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM\nf\nJune 29, 1971\nTo: Board of Governors\nFrom: A. B. Hersey\nAttached are three memoranda (by Mrs. Higgins, Mr. Karcz,\nand Mr. Kohn) reporting on testimony at the Reuss hearings last week.\nThese cover:\nArndt\n)\non surplus\nBirnbaum\n)\nnations and the\nBronfenbrenner\n)\nU.S. competitive\nHouthakker\n)\nposition,\nCohen\n)\non military\nBrazier\n)\nexpenditures,\nand\nJavits\n)\non reform of\nHalm\n)\nthe international\nBergsten\n)\nmonetary system\nWillett\n)\nGERALD R. FORD LIBRARY\nBOARD OF GOVERNORS\nOF THE\nFEDERAL RESERVE SYSTEM\nOffice Correspondence\nDate June 22, 1971\nTo\nMr. Ghiardi\nSubject: Congressional Hearings on\nFrom\nIlse S. Higgins,\nBalance of Payments Problems\nThis morning's Reuss hearings on the \"Surplus Nations and\nthe U.S. Competitive Position\" opened with a statement by Klaus-\nDieter Arndt, head of the Berlin Economic Research Institute. The\nBerlin Institute in a minority move -- had recommended a revaluation\nof the DM rather than a floating in the May report of the five economic\ninstitutes.\n1. In reply to questions by Reuss regarding the possible\nimprovement in the U.S. competitive position from the recent exchange\nrate moves in Europe, Arndt pointed out that -- unless all EEC countries,\nideally also Japan appreciate their currencies, the improvement\nin the competitive position of the U.S. will \"not be significant. \"\nArndt stressed, however, the obstacles to a joint revaluation move\nwithin the EEC: that is the strong resistance of at least two\nGERALD R.FORD LIBRARY\nmember countries (France and Italy). A unilateral revaluation on\nthe part of Germany, on the other hand, he expects to be resisted\nparticularly by the agricultural sector. Arndt also added that, if\nother industrial countries revalue their currencies, the U.S. should\nrespond by liberalizing its economic relationships, ridding itself\nof import quotas, and untying aid. Arndt also pointed out repeatedly\nthat Germany was not much of a surplus nation any longer.\nQuestioned by Reuss whether he considered a revaluation\nof all EEC currencies the desired solution with respect to aiding\nTo: Mr. Ghiardi\n-2-\nGERALD FORD VIBRARY\nthe U.S. competitive position, and if so -- which percentage revaluation --\nArndt answered in the affirmative, but was vague on the percentage\nappreciation of the currencies. He indicated that the rate of\nrevaluation would need to be larger if the yen was also revalued.\nHowever, if Germany alone upvalued its currency, it would not be\nby more than the Austrian or Swiss rate (5 to 7 per cent, respectively).\nReuss concluded that \"the more the revaluations the merrier the dollar.\"\nArndt agreed.\n2. Arndt's statement was followed by that of Birnbaum\nwho focussed on the U.S. balance of payments problems, his objections\nto, or views on, related restrictive official policies and consequences,\nand the current Euro-dollar problem. More specifically, he advanced\nhis theory on the concept of \"current account convertibility.' (See\npaper for details.) Reuss objected to the \"dreadful phrase\" of\ncurrent account convertibility, and had Birnbaum clarify the concept\nby explaining that the dollar would be legally convertible under such\nan arrangement not only for current account transactions, but also\nfor capital transactions.\n3. Bronfenbrenner focussed on the question whether the\nJapanese are likely to revalue the yen. He emphasized that no yen\nrevaluation can be expected in the months to come, and that Japanese\nauthorities are likely to use other devices instead to ward off\npressures on the yen, such as lower official interest rates (even at\nthe risk of domestic inflation), large-scale lowering of tariff rates,\nespecially on products from developing countries, large increases in\nTo: Mr. Ghiardi\n-3-\nforeign aid, as well as some liberalization in capital transactions.\nHere, Reuss pointed out that a liberalization of capital movements\nwas not necessarily beneficial for the U.S. On the contrary, U.S.\ncapital exports to Japan, and the possibility of investment earnings\nnot being repatriated, may make matters worse from the U.S. Balance\nof Payment's viewpoint.\nDespite the substantial undervaluation of the yen,\nBronfenbrenner could see a revaluation only in the long run. As one\nof the reasons for the strong resistance against a revaluation, he\ncited the high dollar-debts and the dollar-invoiced orders in the\nJapanese shipbuilding industry. Bronfenbrenner reasoned that unless\nthe debts are paid off, and new contracts contain a yen-clause, a\nrevaluation appears quite unlikely. Other reasons given were the\nstill low level of reserves in terms of imports, as well as the low\nJapanese standard of living.\nReuss then asked all three witnesses for their opinion on\nthe question:\n\"If international action (revaluations) is unsuccessful,\nwould it be a good idea to (1) close the gold window, (2) support\nthe dollar legally by foreign exchange operations, using IMF support,\nor (3) present the governors of the IMF with the undisputable truth\nthat the world is suffering from disequilibrium, and ask the IMF to\nwork out new parities, if necessary, using an 'interim transitional\nfloat. 111\nFORD is GERALO LIBRARY\nTo: Mr. Ghiardi\n-4-\nArndt answered vaguely that it would be a good idea to\nintroduce more flexibility into the rules of the IMF; but he felt\nunqualified to comment on the kind of move the U.S. should take.\nBronfenbrenner agreed with closing the gold window, but\ndisagreed on having the Fund establish new parities (\"new parities-\nnew problems\").\nBirnbaum opined that the question of parity realignment\nfollowing a change in the dollar value has been exaggerated. He\nwould consider some realignment of parities helpful, but warned that\nthe actual effect may be modest and not worth it. Contrary to Reuss,\nhe argued that the exchange rate is a very important price, which\ncannot be changed \"like the price of cabbage.\" Countered Reuss:\n\"Since the exchange rate is such an important price, we have to\ncorrect it when it is out of line.' 11\n4:- Houthakker, the fourth witness in this morning's hearings,\nwas much more optimistic on the beneficial effects of the recent\nEuropean exchange rate actions on the U.S. balance of payments (see\npaper). With regard to Reuss' proposal of a \"transitional dollar\nfloat,\" Houthakker opposed the idea of closing the gold window, and\nsuggested working through the existing IMF system. More specifically,\nhe doubted whether a dollar float may remove the yen problem.\nMuch of the question-and-answer exchange between Reuss\nand Houthakker evolved around the workings of the Fund whose task\nit should be -- according to Reuss -- to \"sit down for one weekend\nGERALD R.FORD LIBRARY\nTo: Mr. Ghiardi\n-5-\nand redesign the exchange rate system,\" (Houthakker objected), and\nthe question on how one could convince Japan to revalue the yen.\nFORD is 076835 LIBRARY\nBOARD OF GOVERNORS\nOF THE\nFEDERAL RESERVE SYSTEM\nOffice Correspondence\nDate June 23, 1971\nTo\nMr. Ghiardi\nSubject: Congressional Hearings on\nFrom\nJan W. Karcz\nMf\nBalance of Payments Problem\nI have attended the morning session of the Subcommittee of\nthe Joint Economic Committee on Monday, June 21. The session was\ndevoted to the impact of our military expenditures on the balance\nof payments.\nTwo testimonies only were of importance; these were by\nProfessor Benjamin J. Cohen of Princeton and by Deputy Assistant\nSecretary of Defense Don R. Brazier. There was virtually no question\nsession as apart from Chairman Reuss (who periodically left the room)\nno other members of the Subcómmittee attended the session.\nThe highlights of the testimony were as follows:\n1. Prof. Cohen differentiated between the direct and indirect\neffects of our military activities on the balance of payments. The\ndirect effects, which had been making a negative contribution of\nabout $3.5 billion p.a. lately, stem from our expenditures in foreign\nexchange related to our military presence abroad and are partially\noffset by sales of military hardware. The indirect effects Cohen\nclassified as:\na. Induced increase in domestic demand resulting from\nour military activities abroad (and hence higher level of imports\ngenerally).\nb. Increased imports of materials used in higher level\nof domestic production of defense-related items.\nc. Upward shift of propensity to import for U.S. personnel\nand their families stationed abroad (this may be a long-lasting effect,\ncontinuing even after the personnel returns home).\nBERALD FORD LIBRARY\n-2-\nd. The induced upward shift of foreign demand for U.S.\ngoods resulting from dollar earnings by foreigners.\ne. Sales of military hardware tied to our presence abroad\n(e.g., sales to Germany under the successive offset agreements).\nProf. Cohen estimates that the net result of the indirect\neffects is positive and reduces the overall impact of our military\nactivities to the level of, currently, about $3 billion per annum.\nProf. Cohen further examined two areas in which our commit-\nments abroad could be reduced and the balance of payments thus\nimproved: Europe and Asia. Without prejudicing the case, he con-\ncluded that balance of payments considerations cannot be used as\nan argument to bring the troops home and, conversely, bringing the\ntroops home by itself will not solve the balance-of-payments deficit.\n1\n2. Mr. Brazier's testimony could be described as an apologia\nfor the adverse impact of our military presence abroad on the country's\nbalance of payments. He argued that as long as national defense\nconsiderations require us to be abroad such impact must result. All\nthe Department of Defense could do (and has been doing) is to ensure\nthe optimum level of expenditures commensurate with defense require-\nments. He pointed out that in spite of various improvements and savings\neffected, the overall level of foreign-exchange spending has been rising\nbecause wage levels in countries where we maintain defense establishment\nhad been rising very rapidly in recent years.\nFORD is LIBRARY\nBOARD OF GOVERNORS\nOF THE\nFEDERAL RESERVE SYSTEM\nOffice Correspondence\nDate June 25, 1971\nTo\nMr. Ghiardi\nSubject: JEC Hearings, Wednesday morning,\nFrom\nMartin J. Kohn MJK\nJune 23, 1971\nSummary:\nAll four witnesses at the Joint Economic Committee hearings\non the U.S. balance of payments on Wednesday morning, June 23, urged\nreform of the international monetary system. The four witnesses were\nSenator Javits, George N. Halm, C. Fred Bergsten, and Thomas D. Willett.\nThe proposals for reform ranged from a very vague plan put\nforward by Senator Javits for setting up an international federal\nreserve system to Professor Willett's recommendation that the United\nStates adopt a purely passive approach to its balance of payments,\nplacing the burden of adjustment squarely on the rest of the world.\nThere was a broad measure of agreement among the witnesses\non many points, however. All agreed, for example, that greater exchange\nrate flexibility was called for, with a widening of the bands around\nparity being the minimum requirement. Furthermore, three of the\nwitnesses advocated termination or drastic curtailment of the dollar's\nrole as a reserve currency and the fourth -- Professor Willett -- felt\nsuch a step was necessary if his recommendation of a \"flexible dollar\nstandard\" -- the logical consequence of the passive approach to the\nU.S. balance of payments -- was not implemented.\nAnother point in common among the witnesses was a sense of\nirritation over the lack of cooperation by Japan in matters of interna-\ntional trade and finance.\nGERALD FORD LIBRARY\nMr. Ghiardi\n- 2 -\nThough for the most part the witnesses confined their\ncomments to the international sphere, Senator Javits directed\nseveral comments to the state of the U.S. economy. Deploring high\nunemployment, lagging productivity and rapid inflation, he urged a\nwage and price freeze, a step he claimed the public would welcome\nat this point.\nBergsten Testimony\nBergsten urged reform of the international monetary system,\nwith changes in the role of the dollar being \"negotiated\" as a major\npart of the reform.\nHe held that the objections of foreign countries to the\nU.S. balance of payments deficit are far more political than economic\nin nature. He estimated the underlying deficit as being about $2.5\nto $3 billion - - or \"a bit more,\" when one takes into account the\nadministrative and legal restraints on capital outflows. He further\nestimated that, in line with the dollar's position as the world's pre-\neminent vehicle currency, foreign countries would welcome additions\nof dollars to their reserves in an amount up to about $2.5 billion annually.\nHowever, foreign countries nevertheless resent our deficits on equity\ngrounds, he said, maintaining that \"Persistent U.S. deficits financed\nby foreign dollar accruals look unfair to the rest of the world, since\nno other country has such a means to resist adjusting, even if they\nrepresent no economic disequilibrium under the present system and\ntherefore in reality call for no adjustment.\"\nGERALD LISAARY ? FORD\nMr. Ghiardi\n- 3 -\nGERALD R. FORD LIBRARY\nTo deal with this essentially political problem, Bergsten\nrecommended that the U.S. \"accept monetization of outstanding\nofficial dollar balances, via an additional creation of special\ndrawing rights for that purpose, to whatever extent desired by\npresent holders and with the firm agreement that dollars not so\nconverted would continue to be held in national reserves except in\ncases of balance of payments need.\" Bergsten noted that under this\nplan the U.S. would be permanently relieved of the liabilities\nconverted in this manner into SDR's. Similar suggestions, by Triffin,\nfor example, have called for the funding of foreign dollar claims\nexchanged for other reserve assets issued by an international agency.\nUnder the arrangement advocated by Bergsten, the U.S. would also\nbe obliged to \"convert, into U.S. reserve assets, future dollar\naccruals to whatever extent individual countries declare in advance\nthat they do not wish to hold such dollars.\"\nIn return for limiting the use of dollars to finance deficits,\nthe U.S. should insist, according to Bergsten, that improvements in\nthe adjustment mechanism be worked out and that an adequate supply\nof liquidity from \"non-dollar sources\" be provided for. The basic\nelement in the new system of adjustment would be \"more frequent and\nprobably much smaller changes in parities based upon presumptive\ncriteria indicating the need for such changes.\"\nIn answer to a question by Reuss, Bergsten said that while\nthe dollar could adjust against other currencies under his plan, this\nMr. Ghiardi\n- 4 -\nwould be difficult -- given the continuation of the dollar's role\nas a vehicle and intervention currency -- and that the system would\nwork most efficiently if other currencies adjusted against the\ndollar. He favored providing for sanctions against countries that\nignore the presumptive criteria, which constituted the lynchpin of\nthe system.\nThe need for liquidity would probably be reduced by the\nnew adjustment system, Bergsten said. He indicated that adding $4\nor $5 billion a year in SDR's -- a much larger amount than is likely\nto be authorized -- starting in 1973 would probably assure a satis-\nfactory amount of liquidity.\nBergsten also advocated widening the bands to 3 per cent\non both sides of parity. If this were done, formal changes in parity\nwould simply \"ratify\" changes which in effect had already taken place.\nBergsten emphatically opposed \"unpegging the dollar from\ngold at this time.\" Such a move was unnecessary he said, and, if made,\nprobably might not work anyway, since other countries -- viewing such\naction as an adoption by the U.S. of a beggar thy neighbor policy --\ncould prevent appreciation of their currencies by maintaining their\ndollar intervention points.\nGERALD FORD LIBRARY\nMr. Ghiardi\n- 5 -\nWillett Testimony\nThe gist of Willett's presentation was that a choice must\nbe made between two distinct adjustment mechanisms. The first --\nand the one he favors on economic grounds -- is based on the adoption\nof a full-fledged dollar standard. Under this arrangement, the\nUnited States takes a passive approach to its balance of payments,\nletting the rest of the world adjust their exchange rates in order\nto maintain balance. The other alternative is for the dollar to be\nstripped of its reserve currency role and be allowed to adjust as\nany other currency can.\nWillett declared that \"Either of the two polar positions\n...\nwould secure the major U.S. interest -- freedom from the need to use\ncontrols or restrictive macroeconomic policy to correct a balance of\nBERALD FORD LIBRARY\npayments.\"\nThe U.S., he believes, should force a choice, something it\ncould do simply by announcing that \"until such a time as the interna-\ntional community might decide that it wishes to adopt a workable U.S.- -\nas-equal system which gives the United States effective ability to\nchange the exchange-rate of the dollar vis-à-vis other countries, we\nshall adopt a full fledged passive balance of payments policy -- the\nflexible dollar standard solution.\"\nReuss was skeptical of the passive balance of payments\napproach. (\"Not so glorious\" he called it.) He noted that failure\nto respond to benign neglect tactics by countries with undervalued\nMr. Ghiardi\n- 6 -\ncurrencies can create severe unemployment problems here. In\nparticular, he cited the harmful impact on employment in steel\nand electronics that Japan's continued refusal to revalue can be\nexpected to have. Willett characterized this as a \"trade problem,\"\nwhich would not hamper efforts -- which can be more freely made\nwhen the balance of payments is ignored -- to expand aggregate\ndemand and thus boost overall employment. But Reuss felt that\nunemployment might not be so easily reduced, given the immobility\nof many of the workers in the affected industries.\nReuss was also concerned over the probable disappearance\nof the remainder of our gold stock if Willett's passivity prescription\nwere followed, a prospect that left Willett unperturbed. Reuss --\nwho, of course, favors the elimination of the use of gold in interna-\ntional monetary affairs -- nevertheless considers it advisable to\nhang on to what gold we still have until an international monetary\nagreement is worked out.\nHalm Testimony\nHalm advocated \"a considerable measure of limited flexibility,\"\nbut indicated that measures to increase flexibility should follow \"a\ngeneral realignment of parities.' By \"considerable measure of limited\nflexibility\" he meant a combination of wider bands and some form of\ncrawling peg, preferably one not based on a formula but on \"presumptive\nrules.\" He was confident that \"the gliding-band system would enable us\nGERALD FORD GERART\nMr. Ghiardi\n- 7 -\nto improve the international payments situation so substantially\nthat we could then consider U.S. deficits with 'benign neglect. 111\nTo the move toward inflexibility within the EC -- that\nis, toward establishment of fixed parities among European currencies --\nHalm was vehemently opposed. \"The EEC's decision to achieve full\nmonetary union is dangerous and completely unnecessary,\" he said,\nafter stating that \"monetary union is not at all needed for the\nwelding together of European markets and the best allocation of\nresources. Yet the tensions produced by enforced integration may\nwell blow up the whole EEC.\"\nJavits Testimony\nThe high point in Javits' prepared remarks was his\nrecommendation that an international \"federal reserve system\" be\nestablished. He advocated the demonetization of gold and the\neventual elimination of the dollar's position as a reserve currency.\nJavits provided few details on his proposed fed-for-the-world,\nindicating only that the new agency could be separate from the IMF and\nshould be given \"sufficient power to control the supply of official\nreserves in the world economy, and to prevent the misallocation of\nreserves and sharp currency flows which have plagued the monetary\nsystem recently.\"\nJavits urged that several interim measures be adopted before\nthe international central bank begins to operate, including widening of\nBERALD FORD CIBRARY\nMr. Ghiardi\n- 8 -\nthe bands around parity and abandonment of any obligation on the\npart of the U.S. to buy or sell gold (though, unlike Reuss, he did\nnot want to \"close the gold window\" immediately, preferring to\nsettle this question through international negotiations).\nIn the discussion of his testimony, Javits -- in response\nto a question by Senator Percy, the only other member of Congress\nbesides Reuss present at the session -- said he would be willing\nto see the dollar float at the present time. \"The U.S.,\" he said,\n\"has to take its chances with everybody else.\" He predicted that\nthe dollar would turn out to be \"the most stable currency in the\nworld,\" if it were floated, by which he presumably meant that it\nwould not depreciate significantly with respect to other major\ncurrencies. His argument seemed to be that floating the dollar\nwould have a shock effect om America, leading to a major campaign\nto enhance productivity, whose success would make our good competitive\nwith little or no fall in the price of the dollar.\nJavits placed great stress on the need to improve\nproductivity, urging the revival of productivity councils such as\nthose set up in the U.S. during World War II. These councils, which\noperated at all levels in the economy, from the plant on up, were\nstaffed with representatives of labor, management and the public.\nJavits also urged a wage and price freeze, a step he claimed\nwould be broadly welcomed by the public at this point. His theme\nthroughout was that the country is in deep trouble and that drastic\nFORD in LIBRARY 078870\nMr. Ghiardi\nand 9 -\nmeasures are called for. Such measures, he forecast, far from\nalarming or demoralizing the people, would have a tonic effect\non their morale, leading them to undertake a vigorous campaign\nto set things right.\nWith respect to international matters, Javits, joined\nby Percy, urged far more \"Burden sharing\" by our allies. Javits\nsaid this objective would be best accomplished by adopting a tone\nof \"indignation\" in addressing ourselves to our allies rather than\nby use of threats.\nBoth Javits and Percy dwelt at some length on our problems\nwith Japan. In his prepared statement Javits said, \"There are\nsome encouraging signs that Japanese political leadership is beginning\nto realize the implications of Japan's too-little-too-late foreign\neconomic policies on the world's international economic order and\non the long-term interests of Japan herself.\" But both Senators\nclearly felt Japan was still not doing enough. Percy urged Japan to\nrelieve pressures leading to a trade war by easing restriction on\nimports of both goods and capital.\nPercy also observed that Europe was intensifying our problems\nwith Japan by maintaining a multitude of restrictions on Japanese\nimports, thereby causing an even larger influx of Japanese goods into\nthe United States.\nFORD is LIBRARY 07V839\nbots\nbe\nJune 29, 1971\n4\nExport Credits and the VFCR\nDemands continue to be made that U.S. bank credit to\nforeigners be exempted from the Voluntary Foreign Credit Restraint\n(VFCR) Program. There are firm grounds for maintaining that the\nexemption is neither necessary to ensure adequate financing of U.S.\nexports nor desirable in terms of achieving balance of payments\nobjectives.\nThe vast bulk of U.S. bank export financing is done by\na handful of institutions. Of 14,000 banks in the country, only\n170 have enough foreign loans and investments ($500,000 or more)\nto be considered participants in the VFCR Program. Of those 170,\nthe biggest 20 account for three fourths of the VFCR ceilings and\nalmost four fifthsof the foreign assets (loans and investments)\nunder the ceilings. Furthermore, the biggest five banks account\nfor almost half of the total VFCR ceilings and almost half of the\nforeign assets under those ceilings. (See Table I.)\nThe 20 biggest banks have substantial latitude to make export\ncredits under the existing program.\nFirst, their General and Export Term-Loan Ceilings aggregate\nalmost $8-1/2 billion. The 20 biggest banks can use their domestic\nfunds to make loans under ceilings to this amount.\nSecond, they can use the resources of their foreign branches.\nLoans by foreign branches with foreign-source funds are outside the VFCR.\nGERALD FORD LIBRARY\n- 2 -\n4\nThe London branches alone of the 20 biggest U.S. banks have over\n$25 billion in resources. (See Table II.)\nThe biggest 20 banks, in the face of a long-standing\nrequest to give priority to export financing, are devoting only\na minor portion of their domestic and foreign branch resources to\nfinancing U.S.. exports. As of late 1970, one sixth of these banks'\nforeign loans and investments subject to the VFCR ceilings were\ncredits to finance U.S. exports. (See Table III.)\nThe medium-sized and smaller banks, which make up 150 of\nthe VFCR reporting banks and which account for about one fourth of\nthe ceilings and foreign assets under the General Ceiling, have\nlesser foreign resources than the big banks but have more room under\nthe ceilings. At the end of May, they had leeway of 15 per cent\nunder their General Ceilings. Many of them have foreign branches\ntoday -- about 50 having \"shell\" branches at Nassau that may be\nused for obtaining resources and making loans outside the Program\nif they, individually, use up their ceilings.\n(All size categories of banks have large leeway under the\nseparate ceiling for export loans of over one year maturity. In\nApril, there were a little over a quarter billion dollars of such\nloans under an Export Term-Loan Ceiling that aggregated almost $1-1/2\nbillion.)\nFORD is GERALD LIBRARY\nVF\n- 3 -\nl\nThe Need for Continued Restraint\nAny removal of export credits from the VFCR would lead to\na capital outflow. It would induce banks to lend from their head\n1\noffice resources where they are now lending from foreign branch\nresources. It would also make it difficult to adjust and to\nadminister restraints on nonexport credits.\nIn recent months the banking system has been provided with\na generous amount of funds. As monetary conditions ease in the.\nUnited States, banks tend to reduce their borrowings from foreigners\nand to increase their loans and investments abroad. Since the fall\nof 1969, U.S. banks have repaid $12 billion of over $14 of borrowings\nfrom their foreign branches. Any further outflow at this time would\nbe concentrated in their foreign lending and investment. The VFCR\nprogram, however, restrains the banks from making foreign loans and\ninvestments and insures that the funds supplied by the Federal Reserve\nwill be utilized to stimulate the domestic economy rather than\nresulting in capital outflow.\n2\ndifficution- advisition\nproblems surrounly\nGERALD FORD LIBRARA\nWhat is \"Expno\nevelir\"\nus\nForeigness - Who und in on cal\nLouis - 4med use\nJune 29, 1971\nTable II\nTotal Assets of London Branches of 20 Largest VFCR\nReporting Banks - / as of March 31, 1971\n(thousands of dollars)\nBanks Ranked by\nSize, Largest First\nTotal Assets\n1-5\n15,252,452\n6-10\n5,605,179\n11-15\n2,744,755\n16-20\n1,536,163\nTotal\n25,138,549\n1/ These are the assets of the London branches with total dollar\nliabilities exceeding $10 million.\nFORD & GERALD LIBRARY\nJune 29, 1971\nTable III\n1/\nExport Credit as a Percentage of Outstanding Foreign Credi\n(millions of dollars)\nShare of\nShare of\nExport\nForeign\nexport\nnon-export\nForeign\nExport\nloans\nNon-export\ncredits\ncredit in\ncredit in\nRanking of banks\ncredits\nloans\nas %\nloans as %\nrelated\ntotal\ntotal\nby size\noutstanding\nsubject\nof VFCR\nof VFCR\nto\nforeign\nforeign\nlargest first\nunder VFCR\nto VFCR\ncredit\ncredit\nExim/DoD\ncredits3/\ncredits\n1-5\n4,554\n683\n15.0\n85.0\n408\n22.0\n78.0\n6 10\n1,628\n320\n19.7\n80.3\n87\n23.7\n76.3\n11 - 15\n770\n111\n14.5\n85.5\n33\n18.0\n82.0\n2/\n16 - 20\n224\n31\n13.1\n86.9\n7\n16.2\n83.8\nLargest 20\n7,176\n1,145\n16.0\n84.0\n535\n21.8\n78.2\nAll other banks\nin survey\n1,032\n229\n22.2\n76.7\n93\n28.6\n71.4\nTotal of 72 banks\nin survey\n8,208\n1,374\n16.7\n83.3\n628\n22.7\n77.3\nBased on data for November 1970.\n2/ One bank in this group was not included in the survey.\n3/ This column shows export credit exempt from VFCR by virtue of being Exim or DoD related plus export\ncredit under VFCR as a percentage of total outstanding foreign credit, excluding Canada.\nFORD & GERALD LIBRARY\nJune 29, 1971\nTable 1\nVFCR Ceilings by Size of Bank Assets as of May 31, 1971\n(millions of dollars)\n⑈\nCombined General\nOutstanding Assets\nAdjusted Export\nand Export\nSubject to the\nAdjusted General\nTerm Loan\nTerm Loan\nTotal Assets of\nGeneral Ceiling on\nCeiling\nCeiling\nCeiling\nDecember 31, 1968\nMay 31, 1971\nGERALD FORD LIBRARY\nBanks Ranked by Size,\nLargest First\nAmount\nPercent\nAmount\nPercent\nAmount\nPercent\nAmount\nPercent\nAmount\nPercent\n1 5\n4,673.7\n47.0\n492.2\n33.6\n5,165.0\n45.3\n71,626.1\n28.9\n4,809.9\n48.8\n6 10\n1,700.0\n17.1\n212.5\n14.5\n1,912.3\n16.8\n34,415.4\n13.9\n1,862.4\n18.9\n11 15\n803.8\n8.1\n132.9\n9.1\n936.8\n8.2\n23,523.8\n9.5\n794.8\n8.1\n16 20\n331.5\n3.3\n77.0\n5.3\n408.5\n3.6\n14,993.4\n6.0\n305.1\n3.1\n20\nSubtotal,\nlargest\n7,509.1\n75.5\n914.7\n62.5\n8,423.8\n73.8\n144,558.7\n58.3\n7,772.2\n78.8\nBanks\nAll other reporting\n2,441.3\n24.5\n549.4\n37.5\n2,990.7\n26.2\n103,556.4\n41.7\n2,085.7\n21.2\nv\nBanks\nTotal, all\n9,950.4\n100.0\n1,464.1\n100.0\n11,414.5\n100.0\n248,115.1\n100.0\n9,857.9\n100.0\nVFCR reporting\nBanks\nWorld Financial Markets\nMorgan Guaranty Trust Company of New York\nJanuary 19, 1972\nThe balance of\nbillion in 1970. The net liquidity bal-\nance, which measures changes in\nThe balance of payments\npayments in 1971\nU.S. reserve assets and in private\nin 1971, 1\nand official net liquid claims on them,\nThe exchange-rate\nThe U.S. balance-of-payments defi-\nhas lost much of its significance as\nrealignment, 3\ncit in 1971 exceeded all expecta-\na guide to policy.\nThe outlook, 5\ntions. On the official-settlements\nDuring 1971, U.S. official reserve\nStatistical appendix, 7\nbasis the deficit is estimated to have\nassets fell by about $2.4 billion, to\nbeen about $31 billion, excluding the\n$12.1 billion, with virtually all of\neffect of the January 1971 allocation\nthe change occurring in the period\nof SDRs. This was nearly three times\nprior to August 15. At the same time,\nthe size of the $10.7-billion deficit\nU.S. liabilities to foreign official in-\nrecorded on the same basis in 1970.\nstitutions increased by more than\nThe huge, $20-billion increase in the\n$29 billion, to an estimated $521/2\nofficial-settlements deficit between\nbillion by yearend, of which about\nthe two years was due both to a very\n$45 billion was in the form of U.S.\nlarge rise in the deficit on current\nGovernment obligations. These lia-\naccount and long-term capital trans-\nbilities continued to rise until the\nactions and to massive short-term\nGERALD R.FORD\nexchange-rate realignment in the\ncapital outflows from the United\nmiddle of December, reflecting the\nStates.\nheavy exchange-market interven-\nThe deficit remained very large\ntion of foreign monetary authorities.\nfollowing the August 15 measures\nThere was a small, $700-million re-\nand the cutting of the gold-dollar\nduction toward yearend, following\nlink. In the fourth quarter of last year,\nthe realignment.\nthe official-settlements deficit was\nWhile details still are fragmentary,\nabout $6.7 billion, before seasonal\nthe balance on current account and\nadjustment. Although this was sub-\nlong-term capital transactions - or\n23 Wall Street, New York 10015\nstantially below the approximately\nbasic balance - showed a deficit\nBanking offices also in London,\n$121/2-billion deficit recorded in the\nestimated at about $10 billion in\nParis, Brussels, Antwerp, Frankfurt,\nthird quarter, it was slightly above\n1971. This compares with a deficit of\nDüsseldorf, Milan and Rome (Banca\nthe average deficit in the first two\n$3 billion in 1970 and an average of\nMorgan Vonwiller), Zurich, Tokyo,\nquarters of 1971.\nunder $21/2 billion for the years 1966-\nNassau\nThe net liquidity balance was in\n1970, and is considerably larger than\nRepresentative offices in Madrid,\ndeficit by about $23 billion last year,\nwas expected a few months ago.\nBeirut, Sydney, Hong Kong, São\nagain after the exclusion of allo-\nThe 1971 deficit probably was\nPaulo, Caracas\ncated SDRs, compared with $41/2\nswollen by $1 billion or more be-\nPage 1\nmajor, weekly-reporting banks. An\nversal, although the unwinding of\nadditional $2 billion may have been\nleads and lags is a very gradual\nTable 1\ncause of the absence of the usual,\nsales rose by approximately $500\ntransferred abroad by U.S. agencies\nprocess which could take more than\nvery large yearend capital reflows,\nmillion, so that net military outlays\nand branches of foreign banks.\na year.\nU.S. balance of payments\ndue to the decision to allow Amer-\ndeclined by at least $600 million.\nin millions of dollars; excluding SDRs\nPerhaps another $1 1/2 billion or\nican corporations two additional\nThus, the adverse swing in the over-\nmore took the form of an increase\nall current account was only $2.8\nThe exchange-rate\nmonths - until the end of February\nin U.S. banks' short-term loans to\n1970\n1971e\n1972 to repatriate from abroad the\nbillion - from a $400-million surplus\nnonresidents, some of which prob-\nrealignment\nfunds necessary to satisfy OFDI\nin 1970 to a $2.4-billion deficit in\nably were related to exchange-rate\nMerchandise trade\n+2.1\n-2½\nrules.\n1971.\nuncertainties. Finally, American\nOn December 18, the Group of Ten\nCurrent account\n+0.4\n-2½\nThe increase in the basic deficit\nNet long-term capital outflows\ncompanies and foreign-controlled\ncountries agreed on a new pattern\nLong-term capital\n-3.4\n-8\ncan be attributed to a signifi-\nprobably totaled more than $8 bil-\ncompanies resident in the United\nof exchange rates and a temporary\nBasic balance\n-3.0\n101/2\ncant worsening of the balance on\nlion in 1971, representing an in-\nStates may have transferred over-\nwidening of the margins, of up to\nNet liquidity balance\n-4.7\n23\nmerchandise trade and, even more,\ncrease of some $41/2 billion over the\nseas at least $10 billion. The cor-\n21/4%, on each side of their new\nOfficial-settlements\n9.8\n-31\nto a sharp increase in various net\nfigure for 1970. Accordingly, about\nbalance\nporate outflows occurred chiefly\ncentral rates. Subsequently, a large\nlong-term capital outflows.\ntwo-thirds of the widening of the\nthrough a wide variety of leads and\nnumber of countries outside the Ten\nThe deficit on merchandise trade\nbasic deficit last year was due to\nlags in commercial transactions.\nalso realigned the exchange rates\nmay have reached nearly $21/2 bil-\nstepped-up long-term capital out-\ne-estimated\nAccordingly, of last year's $20-\nfor their currencies against the dol-\nlion last year, resulting in an adverse\nflows. Four major factors accounted\nbillion short-term capital outflow, $8\nlar and adopted the broader bands.\nswing of about $41/2 billion from the\nfor these increased outflows. U.S.\nbillion or so was a movement of\nCountries that maintained the previ-\n$2.1-billion trade surplus achieved\ncompanies raised their direct in-\ninterest-rate sensitive funds, and\nously existing exchange rates for\nin 1970. During the first eleven\nvestment outflows by $1 billion, to\nmainly represented a reversal of in-\ntheir currencies relative to the dollar\nmonths of 1971 exports rose only\nmore than $51/2 billion last year.\nflows from the Euro-dollar market\naccount for only about 18% of total\n11/2% while imports increased by\nForeign direct investment in the\nrecorded during the 1968-69 period.\nU.S. trade. A few countries devalued\n131/2%. The rise in total exports,\nUnited States, which increased by\nThese funds are unlikely to return\nagainst the dollar, but for reasons\nhowever, concealed a decline in the\nalmost $1 billion in 1970, probably\nto the United States. The remaining\nlargely unrelated to the multilateral\nvalue - and an even sharper drop\ndropped by $300 million - a turn-\n$12 billion has a potential for re-\nexchange-rate realignment.\nin the volume - of exports to some\naround of $1.3 billion. Another $1-\nmajor countries and areas, such\nbillion adverse swing was attribut-\nTable 2\nas Japan and Europe. Data for the\nable to U.S. banks' long-term lend-\nperiod January-November 1971\ning abroad, which rose by as much\nExchange-rate changes\nshow pronounced worsening in U.S.\nas $800 million in 1971, following a\npercentage changes against\ntrade balances with Canada ($450\n$200-million decline in 1970. Net\nthe U.S. dollar from pre-\ntrade-weighted average\nmillion worse), Japan ($1,675 mil-\nportfolio capital inflows were only\nMay 1971 paritiest,\nchanges against a group\nexpressed in U.S. cents\nof major currencies\nlion), Common Market countries\nabout $700 million down from more\nnew\nnew\n($1,035 million) and other European\nthan $1.2 billion in 1970 - as a result\ncentral\nmarket rates\ncentral\nmarket rates\nof both reduced foreign purchases\nrates\nDec 31\nJan 18\nrates\nDec 31\nJan\n18\ncountries ($1,105 million).\nAlthough the trade outcome was\nof U.S. securities and increased\nUnited States dollar\n0.00\n0.00\n0.00\n- 10.35\n- 9.05\n- 9.58\ndistorted by U.S. dock strikes and\nU.S. purchases of foreign securities.\nCanadian dollar\n+8.49*\n+7.87\n+7.43\n+5.58*\n+5.44\n+4.77\nthe threat of a steel strike, the trend\nNet short-term capital outflows of\nJapanese yen\n+16.87\n+14.37\n+15.17\n+11.93\n+10.34\n+10.78\nclearly was one of sharp deteriora-\nabout $20 billion accounted for the\nBritish pound\n+8.57\n+6.35\n+7.51\n+0.67\n- 0.43\n-0.07\ntion. Coming as it did in the absence\ndifference between the estimated\nGerman mark\n+13.58\n+12.01\n+13.87\n+4.54 +4.24 +4.89\nof a strong economic expansion in\n$10-billion basic deficit and the $31-\nFour currencies with\nFrench franc\n+8.57\n+6.45\n+7.78\n-1.31\n-2.20\n-2.14\nbillion official-settlements deficit in\nItalian lira\n+7.48\n+5.28\n+6.28\n-1.90\n-2.76\n-2.96\nthe United States, the distinct\nBelgian franc\n+11.57\n+11.61\n+13.17\n+1.51\n+2.79\n+2.91\nweakening of the U.S. trade position\n1971. The difficulty of identifying the\nmarket rates above\nDutch guilder\n+11.57\n+11.33\n+13.19\n+1.17\n+2.12\n+2.56\nwas a major factor leading to the\nshort-term capital flows is indicated\nSwiss franc\n+13.87\n+11.75\n+12.94\n+3.89\n+3.39\n+3.31\nnew U.S. approach to international\nby the $81/2 billion of transactions\nnew central rates\nAustrian schilling\n+11.59\n+9.59\n+11.54\n+0.60\n+0.22\n+0.74\neconomic policy.\nclassified as errors and omissions\nDanish krone\n+7.45\n+6.26\n+6.80\n-1.31\n-1.17\n-1.70\nin the balance-of-payments figures\nNorwegian krone\n+7.49\n+6.56\n+6.82\n-1.41\n-1.04\n-1.80\nIn contrast, most other current-\non 1/18/72\nSwedish krona\naccount items showed improvement\nfor the first three quarters of 1971\n+7.49\n+6.47\n+7.60\n-1.46\n-1.16\n-1.07\nAustralian dollar\n+8.57\n+6.12\n+6.35\n- 0.24\n1.15\n-1.63\nrelative to 1970. In particular, direct\nalone. However, some $6 billion\ninvestment income is estimated to\nof the $20-billion total was due\nto the reduction of U.S. banks'\nt pre-June 1970 for Canada\nhave risen by $800 million. U.S. mili-\nA central rate has not been set for the Canadian dollar. The December 17, 1971 market rate is used in\ntary expenditures abroad fell by\nEuro-dollar liabilities, of which $5\nlieu of a central rate.\nabout $100 million, while military\nbillion can be attributed to the\nMorgan Guaranty Trust Company / Page 3\nPage 2 / World Financial Markets / January 1972\nThe actual devaluation of the dol-\nexchange-rate parities that existed\nVis-à-vis the 14 major currencies\nconsiderably below the record out-\nlar against all major currencies is in\nprior to May 1971 are shown in the\nlisted in Table 2, the new central\nflows of 1971.\nsharp contrast to the view widely\nfirst column of Table 2. In announc-\nrates represent an effective devalua-\nThe effective dollar devaluation\nheld only 12 to 18 months ago that\ning the results of the Group of Ten\ntion of the dollar of 10.35%, on a\ncould favorably affect the U.S. trade\nthe dollar could not be successfully\nmeeting last month, Secretary Con-\ntrade-weighted average basis. The\nbalance over time by at least $6 bil-\ndevalued against more than just a\nnally stated that the effective devalu-\nUnited States conducts about two-\nlion. However, such research as has\nhandful of currencies. Moreover, the\nation of the dollar against major in-\nthirds of its total trade with this\nbeen done in this field indicates\nassumption generally made that\ndustrial countries, weighted by bi-\ngroup of countries. Since a central\nthat it takes about two to three\nall less-developed countries would\nlateral trade, amounted to 12%. This\nrate has not been set for the Cana-\nyears for exchange-rate changes to\nautomatically follow the United\nfigure is the trade-weighted average\ndian dollar, the December 17, 1971,\nhave an appreciable effect on trade\nStates by maintaining existing ex-\nchange in the exchange rates for\nmarket rate is used in lieu of a cen-\npatterns, and even longer to exert\nchange rates for their currencies\nthe dollar vis-à-vis eight other coun-\ntral rate for this computation. The\ntheir full impact. The short-term ef-\nvis-à-vis the dollar has proven\ntries, expressed in U.S. cents per\nmethod used in this publication for\nfects of exchange-rate changes are\nwrong. Clearly, the world accepted\nforeign-currency unit. These eight\ncalculating the trade-weighted aver-\nsmall. Experience with the devalu-\nthe necessity of a sizable effective\ncountries are the other members of\nage devaluation of the dollar was de-\nation of the pound sterling in No-\ndollar devaluation. Moreover, many\nthe Group of Ten with the exception\nscribed in the October 1971 issue. It\nvember 1967 and the revaluation of\ncountries discovered that, in the con-\nof Canada. The United States con-\nshould be noted that apart from the\nthe German mark in October 1969\ntext of a world-wide realignment of\nducts only about 38% of its total\ninclusion of more countries than\nattest to the long period that is\nexchange rates, an appreciable re-\ntrade with these eight countries. The\nwere used in the 12% figure,\nrequired for exchange-rate changes\nvaluation of their currencies against\nexclusion of Canada - with which\nthe method used here measures\nto exert their full influence.\nthe dollar need not result in a sig-\nthe United States conducts approx-\nchanges in exchange rates ex-\nAnother important reason not to\nnificant effective revaluation against\nimately one-fourth of its total trade\npressed in U.S. cents per foreign-\nanticipate significant improvement\nall currences, measured on a trade-\nfrom the calculation is an important\ncurrency unit as well as those ex-\nin the trade balance this year is that\nweighted average basis.\nomission. Canada apparently was\npressed in foreign-currency units\nthe U.S. economy is expected to\nThe percentage changes in the\nexcluded because it continues to\nper U.S. dollar.\nshow a substantial expansion in\nnew central rates for the major cur-\nfloat its currency, but this omission\nAgainst all currencies which re-\nthe year ahead while other major\nrencies, expressed in U.S. cents per\ntends to distort the extent of the\nvalued relative to the dollar, the dol-\nindustrial countries, as a whole, are\nunit of foreign currency, from the\neffective devaluation of the dollar.\nlar's effective devaluation was about\nlikely to show only very modest eco-\n9.7%, on a trade-weighted average\nnomic growth, at least through the\nTable 3\nbasis. These countries account for\nfirst half of 1972.\nThree-month interest\nnearly 80% of total U.S. trade. Fi-\nFurthermore, the potential realign-\nrate arbitrage\nnally, against all of the currencies\nment effect can be eroded unless\nof the world, including those which\nthe United States is able to keep its\nspread against Euro-dollarsd\ndid not change their exchange rates\nprice increases below those of\nhedged\nunhedged\nvis-à-vis the dollar and those which\nother major industrial countries.\nforward\ndevalued vis-à-vis the dollar - such\nmoney\nexchange\nmoney\nmoney\nThe potential trade benefits can-\nloan\nmarket\npremium\nloan\nmarket\nloan\nmarket\nas Israel, Ghana, South Africa, and\nnot be reaped unless U.S. industry\nratesa\nratesb\nor discountc rates\nrates\nrates\nrates\nYugoslavia — the effective dollar de-\nis willing to take full advantage of\nvaluation on a trade-weighted aver-\nthe new opportunities presented by\nEuro-dollars®\n6.07\n5.19\n1.18\n+0.06\nage basis was about 7½.\nthe realignment. The past tendency\nGermany\n7.25\n5.25\nP 1.31\n-2.49\n+1.37\nFrance\n8.65\n5.25\nd 0.23\n-2.35\n-0.17\n-2.58\n+0.06\nto de-emphasize exports and give a\nItaly\n8.00\n5.50\nP 0.61\n-2.54\n+0.92\n1.93\n+0.31\nThe outlook\nvery high priority to investing abroad\nBelgium\n7.00\n5.15\nd 0.68\n-0.25\n-0.72\n0.93\n-0.04\nhas to change to help bring about\nNetherlands\n6.50\n5.00\nd 0.37\n0.06\n-0.56\n0.43 0.19\nIt is reasonable to expect the\na major swing in the U.S. trade bal-\nSwitzerland\n7.00\n1.50\nP 4.81\n-5.11\n+1.12\n-0.93\n-3.69\nUnited Kingdom\n5.50\n4.50\np 0.28\n-0.69\nbasic balance to show some im-\n+0.29\n-0.41\n+0.57\nance. Also, the hoped-for results will\n5.78\n1.03\n+0.06\nprovement this year from 1971's $10-\nnot be forthcoming unless some of\nJapan\n7.10\n5.25\nP 4.75\n+4.81\nbillion deficit, but it is not prudent\nthe major surplus countries ease\nto project this improvement to be\ntrade barriers that no longer are\na latest available rates for all countries\nmore than a few billion dollars. The\nwarranted by their balance-of-pay-\nb latest available representative money market rates for all countries except\nSwitzerland, for which the 3-month bank deposit rate is used\ntrade and current account deficits\nments positions.\nC\nbased on New York noon quotes on 3-month forward rates for foreign currencies on January 18,\nshould not be expected to decline\nThere are offsetting forces at\nin per cent per annum\nd in favor of domestic currency, +; in favor of Euro-dollars, —\nmuch this year, but long-term capi-\nwork in the area of invisibles. The\ne noon rates on January 18\ntal outflows are likely to remain\nrevaluation of foreign currencies will\nPage 4 / World Financial Markets / January 1972\nMorgan Guaranty Trust Company / Page 5\nincrease the dollar value of overseas\nthe accumulation of dollars by for-\nStatistical appendix\ninvestment income - a large part of\neign central banks will continue. In\nfor key to data in charts and tables\nwhich is denominated in foreign cur-\nfact, U.S. liabilities to foreign cen-\nSee pages 22 and 23\nrencies - earned by U.S. corpora-\ntral banks rose by $600 million\ntions, banks and other parties. In\nthrough the first two weeks of Janu-\ncontrast, the revaluation will tend\nary, thus nearly offsetting the de-\nto increase the dollar cost of U.S.\ncline in these liabilities during the\nlast two weeks of 1971.\nSpot exchange rates, 8\nmilitary expenditures abroad. Simi-\nlarly, the balance-of-payments bene-\nA large reflux of short-term capital\nWeighted average exchange-\nrate changes, 9\nfit of the considerable decline in U.S.\nrequires the restoration of confi-\ninterest rates will be offset by the\ndence in the pattern of exchange\nInternational bond yields, 10 and 11\nsharp rise in total U.S. liabilities to\nrates as well as appropriate market\nEuro-dollar deposit rates, 10\nforeigners.\nincentives. For market participants\nU.S. companies' borrowing rates, 11\nThere could be a reduction of $2\nto unwind their leads and lags, and\nNew international bond issues, 12 and 13\nbillion to $3 billion in long-term capi-\npositions taken in yen, marks and\ntal outflows. This could result from\nother foreign currencies, they have\nInternational bond issues\noutside the United States, 14\na much smaller increase than in\nto consider exchange rates - even\n1971 in U.S. banks' long-term loans\nwithin their new 41/2% bands - to be\nCentral bank discount rates, 15\nto foreigners; a resumption of for-\nattractive. This was not the case in\nTreasury bill rates, 16 and 17\neign direct investments in the United\nthe first few weeks after the realign-\nRepresentative\nStates; a reduction in U.S. direct-\nment, when all foreign currencies\nmoney-market rates, 16 and 17\ninvestment capital outflows, which\nwere in the lower part of their bands.\nCommercial bank\nwere unusually large last year; and\nIt was not until the second week in\ndeposit rates, 18 and 19\nstepped-up foreign portfolio invest-\nJanuary that several foreign curren-\nCommercial bank lending rates\nment in U.S. securities. However,\ncies moved up to around their new\nto prime borrowers, 18 and 19\nsuch a development requires a large\ncentral rates; the mark, guilder and\nDomestic government\nmeasure of confidence, not only in\nBelgian franc moved above their\nbond yields, 20 and 21\nthe exchange-rate structure, but also\ncentral rates. As a result, on January\nDomestic corporate\nbond yields, 20 and 21\nin such things as U.S. economic per-\n19 the trade-weighted average de-\nformance. Moreover, such a favor-\nvaluation of the dollar reached\nable trend could be thwarted in part\n9.58%. Although this was close to\nby a further easing of U.S. controls\nthe highest percentage since the re-\nInformation herein is from sources we\nconsider to be reliable but is furnished\nover long-term capital movements.\nalignment agreement, it was still be-\nwithout responsibility on our part.\nSince the basic balance will con-\nlow the 10.35% based on central\ntinue to be in substantial deficit this\nrates.\nyear, there will still be a heavy,\nAnother important market factor\nundercurrent outflow of dollars from\nthat has deterred the reversal of\nthe United States. The question\nshort-term flows has been the lack\narises as to the extent to which this\nof any interest-rate incentives.\noutflow will be covered by the reflow\nMoney-market rates in the United\nof short-term capital. As noted\nStates have been low and declining.\nabove, at most $12 billion of last\nAlthough rates in European coun-\nyear's short-term capital outflow has\ntries and Japan also have come\nthe potential of being reversed.\ndown, 3-month lending and money-\nIf a large part of this outflow\nmarket rates there, as a rule, have\nindeed is reversed during 1972, it\nbeen well above U.S. and Euro-\nwould offset the basic deficit, and as\ndollar rates, both on a hedged and an\na result the balance of payments on\nunhedged basis (see Table 3). Ac-\nan official-settlements basis could\ncordingly, European companies, es-\nbe in equilibrium or could even show\npecially those in Germany, had little\na modest surplus this year. Con-\nor no incentive to reduce their heavy\nversely, if the reflux remains small,\nforeign indebtedness.\nPage 6 / World Financial Markets / January 1972\nMorgan Guaranty Trust Company / Page 7\nSpot exchange rates\nExchange rate changes vis-à-vis a group of 14 major currencies\nleft scale: U.S. cents per unit, weekly average of daily rates in New York\nweighted according to 1970 bilateral tradet\nright scale: percentage change from parities existing as of April 1971\nchanges from pre-May 1971 parities (pre-June 1970 for Canada), based on weekly\naverage of daily exchange rates for commercial transactions\n332148\n2.28271\nJapanese yen\nBelgian franc\n14\n-2\n5\nUnited States\n18\nUnited Kingdom\n12\n324675\n2.23135\n16\n10\n317530\n2.18225\n-7\n0\n14\n8\n12\n6\nste\n-12\n5\n10\n10\n5\n4\nCanada\nItaly\n2.06000\n8\n)\n31.5289\n14\nDutch guilder\n.294445\n6\n5\n12\n0\n19.9976\n30.8195\nFrench franc\n10\n10\n19.5477\n30.1413\n8\n8\n0\n- 5\n12\n5\n19.1175\n6\nJapan\nNetherlands\n6\n4\n28.8674\n.175926\nItalian lira\n7\n0\n2\n8\n171969\n18.0044\n0\n31.7460\n16\n6\nGerman mark\n2\n5\n168185\n10\n5\n14\n4\nGermany\nBelgium\n31.0318\n12\n2\n30.3490\n161600\n5\n0\n10\n26.6383\nSwiss franc\n16\n,\n8\n26.0417\n14\n29.3717\n266.434\n0\n5\nPound sterling\nI\n12\n10\n10\n3\n25.4712\nSwitzerland\nFrance\n260.571\n10\n8\n0\n24.8129\n254.708\n6\n101.750\n10\n5\nCanadian dollar\n4\n8\n244.800\n2\n98.0500\nSep\nOct\nNov\nDec\nFeb\nSep\nOct\n6\nJan\nNov\nDec\n0\nJan\nFeb\n7\nA\nS\nO\nN\nD\nJ\nA\nS\nO\nN\nD\nJ\ntBased on method described in October 1971\nWorld Financial Markets.\nPage 8/ World Financial Markets / January 1972\nMorgan Guaranty Trust Company / Page 9\nInternational bond yields\nInternational bond yields\n%\nLong-term issues, at or near end of month:\n10\nLong-term dollar bonds\nGovern-\nU.S. companies\nEuropean companies\nments\nU.S.\nGerman\nSwiss\nU.S.\nGerman\nU.S.\nEuropean companies\ndollar\nmark\nfranc\ndollar\nmark\ndollar\n9\n1970\nDec\n8.27\n7.71\n5.97\n8.61\n8.04\n8.23\n1971\nJan\n8.10\n7.40\n5.91\n8.38\n7.89\n7.96\nFeb\n8.23\n7.61\n5.78\n8.46\n7.98\n7.92\nU.S. companies\nMar\n8.36\n7.44\n5.66\n8.52\n7.93\n7.80\n8\nApr\n8.46\n7.32\n5.53\n8.64\n7.84\n7.84\nGovernments\nMay\n8.56\n7.91\n5.52\n8.78\n7.91\n7.99\nJun\n8.48\n7.61\n5.64\n8.67\n8.05\n7.96\nJul\n8.81\n7.56\n5.70\n8.91\n8.00\n8.07\nAug\n8.89\n7.68\n5.67\n9.00\n8.09\n8.31\n7\nSep\n8.76\n7.44\n5.50\n8.98\n7.92\n8.39\nDec\nMar\nJun\nSep\nDec\nMar\nJun\n1970\n1971\nOct\n8.28\n7.34\n5.39\n8.40\n7.89\n8.10\nNov\n8.16\n7.34\n5.36\n8.42\n7.92\n8.01\nU.S. companies' borrowing rates\nDec\n7.84\n7.35\n5.47\n8.09\n7.84\n7.84\n%\n10\nDomestic and international\nEuro-dollar\nbank loans\n9\nEuro-dollar deposit rates\nInternational\ndollar bonds\nprime banks' bid rates in London, at or near end of month\n8\n7-day\nOne\nThree\nSix\nTwelve\nDomestic\nCall\nnotice\nmonth\nmonths\nmonths\nmonths\nbonds\n1968\nDec\n6.75\n6.88\n7.00\n7.06\n7.13\n7.13\n1969\nMar\n7.88\n8.00\n8.63\n8.44\n8.50\n8.44\nInternational\nJun\n9.25\n9.25\n10.00\n10.50\n10.50\n10.94\n7\nDM bonds\nSep\n9.63\n10.00\n10.38\n11.31\n11.25\n10.94\nDec\n10.13\n10.13\n9.75\n10.13\n10.06\n9.81\n1970\nMar\n8.63\n8.63\n8.50\n8.50\n8.50\n8.50\nJun\n8.63\n8.63\n8.81\n9.00\n9.06\n9.06\n6\nSep\n7.88\n7.88\n8.00\n8.38\n8.44\n8.44\nDec\n5.38\n5.38\n6.19\n6.44\n6.75\n6.75\nDomestic\nbank loans\n1971\nMay\n7.75\n7.75\n7.81\n7.56\n7.56\n7.56\nJun\n4.63\n5.00\n5.69\n6.50\n7.00\n7.38\n5\nJul\n5.50\n7.25\n6.69\n6.69\n7.25\n7.25\nAug\nn.a.\n10.50\n9.25\n8.88\n8.75\n8.13\nSep\n5.38\n5.63\n7.06\n7.75\n7.75\n7.75\nOct\n4.75\n4.75\n5.13\n5.94\n6.06\n6.38\nNov\n5.00\n5.00\n6.50\n6.44\n6.50\n6.56\n4\nDec\n5.13\n5.25\n5.75\n5.75\n5.81\n6.00\nDec\nMar\nJun\nSep\nDec\nMar\nJun\n1970\n1971\nPage 10 / World Financial Markets / January 1972\nMorgan Guaranty Trust Company / Page 11\nNew international bond issues\nNew international bond issues\nIssuer\nCountry/state\nAmount,\nOffer\nCoupon\nOffer\n(Guarantor)\n(Euro-bond: E; Foreign bond: F)\nof domicile\nmillions\ndate\nrate a\nMaturity\nprice\nYield b\nIssuer\nCountry/state\nAmount,\nOffer\nCoupon\nOffer\n(Guarantor)\n(Euro-bond: E; Foreign bond: F)\nof domicile\nmillions\ndate\nrate a\nMaturity\nprice\nYieldb\nJanuary 1972 - preliminary\nDecember 1971\nU.S. companies\nUnion Oil International Finance Corporation\nDelaware\n$20\n19\n7a\n1979\nU.S. companies\n(Union Oil Company) (E)\n$30\n19\n7 1/2 a\n1987\nGrolier International, Inc.\nDelaware\n$15\n6\n83/4 a\n1986\n97\n9.00\n(Grolier, Incorporated) (E)\nOther companies\nDuPont Overseas Finance N.V.\nN. Antilles\n$30\n7\n7½ a\n1978\n100\n7.36\nImatran Voima Osakeyhtiö\nFinland\nDM 75\n5\n8\n1987\n991/2\n8.06\n(E.I. duPont de Nemours & Co.) (E)\n(Republic of Finland) (E)\nTransocean Gulf Oil Company\nDelaware\n$40\n30\n7½ a\n1987\n100\n7.36\nBayer International Finance N.V.\nN. Antilles\nSwF 80\n7\n61/4 a\n1987\n100\n6.16\n(Gulf Oil Corporation) (E)\n(Bayer, A.G.) (F)\nBritish Insulated Callender's Cables Finance N.V.\nN. Antilles\n$20\n13\n73/4 a\n1987\n99 1/2\n7.66\nOther companies\n(British Insulated Callender's Cables Limited) (E)\nBank of Tokyo Holding S.A.\nLuxembourg\n$25\n1\n73/4\na\n1978\n100\n7.61\nCrédit Lyonnais S.A. (E)\nFrance\n$25\n13\n61/2 a\n1975\n100\n6.40\n(Bank of Toyko; Industrial Bank of Japan) (E)\nStora Kopperbergs Bergslags A.B. (F)\nSweden\nSwF 60\n14\n61/4 a\n1987\n99\n6.26\nCommercial Union Assurance Company, Limited (E)\nU.K.\n$30\n7\n8½ a\n1986\n100\n8.33\nShell International Finance N.V.\nN. Antilles\n$70\n20\n7 1/2 a\n1987\n1001/2\n7.31\n$15\n7\n77/8\na\n1978\n100\n7.73\n(Shell Petroleum N.V., Shell Petroleum Co., Ltd.) (E)\nRefineria de Petróleos del Norte S.A.\nSpain\n$15\n20\n8½\na\n1986\n991/2\n8.38\nSandvikens Jernverks A.B. (E)\nSweden\nDM 75\n20\n7 1/2\n1987\n993/4\n7.53\n(Gulf Oil; Banco de Bilbao; Banco de Vizcaya) (E)\nI.C.I. International Finance Limited\nBermuda\n$50\n25\n71/4\n1992\n(Imperial Chemical Industries) (E)\nState enterprises\nElectricity Supply Commission of South Africa\nSouth Africa\n$20\n2\n81/2 a\n1986\n98\n8.57\nState enterprises\n(Republic of South Africa) (E)\nCopenhagen Telephone Company (E)\nDenmark\nDM 40\n3\n7 1/2\n1986\n98 1/2\n7.67\nThe Hydro-Electric Power Commission of Ontario\nCanada\nDM 100\n8\n71/2\n1986\n98 1/2\n7.67\nNorges Kommunalbank (E)\nNorway\n$20\n12\n7 1/2 a\n1987\n991/4\n7.45\n(Province of Ontario) (E)\nEurofima (E) C\nFI 50\n20\n7a\n1979\nEuropistas Concesionaria Española, S.A.\nSpain\nDM 100\n15\n8\n1986\n97 1/2\n8.29\n(Spanish State) (E)\nGovernments\nDevelopment Bank of Singapore, Limited\nSingapore\n$10\n22\n81/2 a\n1981\n100\n8.33\nKingdom of Denmark (E)\n$30\n11\n71/2 a\n1990\n99\n7.46\n(Government of Singapore) (E)\nCommonwealth of Australia (E)\nDM 100\n21\n7\n1987\nGovernments\nRepublic of Iceland (E)\n$15\n26\n8\n1987\nRepublic of South Africa (E)\n$25\n26\n8\nNew Zealand Government (F)\n£10\n1\n71/4\n7.30\n1987\nNew Zealand\n1977\n993/4\nNew Zealand Government (E)\nDM 100\n27\n7a\n1987\nDepartment des Alpes-Maritimes (F)\nFrance\nSwF 9\n20\n7a\n1987\n100\n6.88\nCity of Oslo (F)\nNorway\nDM 80\n23\n7½\n1986\n98 1/2\n7.67\nInternational organizations\nEuropean Coal and Steel Community (F)\nLit 20,000\n20\n7\n1987\nInternational organizations\n941/2\n7.62\nEuropean Investment Bank (F)\nFF 100\n6\n73/4\na\n1981\n100\n7.60\nInternational Bank for Reconstruction and\nDM 250\n10\n7½ a\n1986\n100\n7.36\na Coupon interest is payable semiannually\nb Where coupon interest is payable annually,\nc Private placement.\nDevelopment (F)\nunless followed by an \"a\" which indicates\npayment is discounted semiannually for com-\nan annual coupon.\nparability in computation of yield.\nAsian Development Bank (F)\nASch 150\n13\n7\n1983\n98 1/2\n7.19\nEuropean Coal and Steel Community (F)\nFF 150\n15\n81/2 a\n1989\n100\n8.33\na Coupon interest is payable semiannually\nb Where coupon interest is payable annually,\nunless followed by an \"a\" which indicates\npayment is discounted semiannually for com-\nan annual coupon.\nparability in computation of yield.\nPage 12 / World Financial Markets / January 1972\nMorgan Guaranty Trust Company / Page 13\nInternational bond issues outside the United States\nCentral bank discount rates\nin millions of U.S. dollars\n1968\n1969\n1970\n1971\nCurrent\n1971\nJan\nend\nend\nend\nend\nend\nend\nend\nJan 18\nEffective\n1967\n1968\n1969\n1970\n1971\nOct\nNov\nDec\n1972\n1971\nDec\nDec\nDec\nMar\nJun\nSep\nDec\n1972\nsince\nEuro-bonds, total\n002\n3 573\n3156\n2 966\n3624\n155\n530\n255\n461\n290\nUnited States\n5.50\n6.00\n5.50\n4.75\n4.75\n5.00\n4.50\n4.50\nDec 13, 71\nCanada\n6.50\n8.00\n6.00\n5.25\n5.25\n5.25\n4.75\n4.75\nOct 25, 71\nby category of borrower\nJapan\n5.84\n6.25\n6.00\n5.75\n5.50\n5.25\n4.75\n4,75\nDec 29, 71\nU.S. companies\n562\n2 096\n1 005\n741\n1 090\n34\n195\n85\n50\n25\nOther companies\n575\n603\n817\n1 065\n1119\n11\n224\n85\n212\n109\nBelgium\n4.50\n7.50\n6.50\n6.00\n6.00\n5.50\n5.50\n5.00\nJan 6, 72\nState enterprises\n442\n349\n682\n594\n838\n55\n56\n85\n67\n129\nFrance\n3.50\n8.00\n7.00\n6.50\n6.75\n6.75\n6.50\n6.00\nJan 14, 72\nGovernments\n303\n500\n584\n351\n479\n42\n55\n-\n132\n27\nGermany\n3.00\n6.00\n6.00\n6.00\n5.00\n5.00\n4.00\n4.00\nDec 23, 71\nInternational organizations\n120\n25\n68\n215\n98\n13\n-\n-\n-\n-\nItaly\n3.50\n4.00\n5.50\n5.00\n5.00\n5.00\n4.50\n4.50\nOct 14, 71\nby currency of denomination\nNetherlands\n5.00\n6.00\n6.00\n6.00\n5.50\n5.00\n5.00\n4.50\nJan 6, 72\nU.S. dollar\n1 780\n2554\n1 723\n1775\n203\n35\n445\n200\n325\n181\nGerman mark\nDenmark\n6.00\n9.00\n9.00\n8.00\n7.50\n7.50\n7.50\n7.00\nJan 10, 72\n171\n914\n1 338\n688\n786\n82\n71\n55\n121\n71\nDutch guilder\n-\n-\n17\n391\n298\n27\n14\n15\n28\nNorway\n3.50\n4.50\n4.50\n4.50\n4.50\n4.50\n4.50\n4.50\nSep 27, 69\n-\nOther a\nSweden\n105\n5.00\n7.00\n7.00\n6.50\n6.00\n5.50\n5.00\n5.00\nNov 12, 71\n51\n78\n112\n337\n11\n-\n-\n-\n10\nSwitzerland\n3.00\n3.75\n3.75\n3.75\n3.75\n3.75\n3.75\n3.75\nSep 15, 69\nby type of security\nUnited Kingdom\n7.00\n8.00\n7.00\n7.00\n6.00\n5.00\n5.00\n5.00\nSep 2, 71\nLong-term straight debt\n1 427\n1108\n1 852\n1 995\n2 623\n128\n371\n185\n381\n247\nMedium-term straight debt\n260\n480\n173\n733\n706\n27\n84\n70\n55\n28\nSouth Africa\n5.50\n5.50\n5.50\n6.50\n6.50\n6.50\n6.50\n6.50\nMar 30, 71\nCertificates of deposit\n55\n75\n-\n-\n-\n-\n-\n-\n25\n-\nConvertible\n260\n1910\n1 131\n238\n295\n-\n75\n-\n-\n15\nForeign bonds, total\n403\n1 135\n827\n378\n1 527\n132\n146\n170\n71\n27\nDay-to-day money rates\nmonthly averages\nby category of borrower\nU.S. companies\n48\n139\n223\n55\n200\n44\n-\n-\n-\n14\n1967\n1968\n1969\n1970\n1971\nOther companies\n65\n56\n128\n83\n208\n21\n34\n-\n37\n13\nDec\nDec\nDec\nDec\nJun\nJul\nAug\nSep\nOct\nNov\nDec\nState enterprises\n-\n12\n107\n16\n156\n-\n5\n-\n-\n-\nGovernments\n157\n317\n98\n53\n254\n-\n-\n51\n-\n-\nUnited States\n4.51\n6.02\n8.97\n4.90\n4.91\n5.31\n5.57\n5.55\n5.20\n4.91\n4.14\nInternational organizations\n133\n611\n271\n171\n709\n67\n107\n119\n34\n-\nCanada\n5.67\n5.46\n7.78\n5.14\n3.03\n3.64\n4.01\n4.14\n4.16\n3.72\n3.61\nJapan\n7.30\n7.15\n8.50\n7.50\n6.50\n6.25\n6.25\n6.00\n5.50\n5.50\n5.00\nby currency of denomination\nGerman mark\n10\n674\n531\n89\n308\n-\n-\n93\n-\n-\nBelgium\n2.54\n3.36\n6.07\n5.55\n2.68\n4.53\n3.55\n3.60\n3.55\n4.20\n4.10\nSwiss franc\n153\n238\n196\n193\n659\n65\n54\n2\n37\n27\nFrance\n4.76\n8.22\n10.38\n7.48\n6.38\n5.91\n5.75\n5.96\n5.94\n5.94\n5.30\nItalian lira\n24\n72\n24\n-\n32\n-\n-\n-\n34\n-\nGermany\n2.80\n2.06\n8.13\n7.50\n7.00\n6.25\n6.25\n7.00\n7.50\n4.63\n5.88\nBritish pound\n102\n19\n-\n12\n138\n-\n-\n24\n-\n-\nNetherlands\n4.05\n4.96\n7.11\n6.73\n2.91\n2.69\n5.53\n3.80\n5.35\n3.79\n4.91\nOther b\n114\n132\n76\n84\n390\n67\n92\n51\n-\n-\nby type of security\nSwitzerland\n2.00\n3.25\n4.75\n5.50\n2.50\n2.50\n0.50\n0.50\n0.13\n0.00\n0.00\nLong-term straight debt\n377\n956\n641\n345\n1 204\n104\n146\n146\n71\n27\nUnited Kingdom\n7.45\n6.52\n7.64\n6.66\n5.88\n5.75\n5.16\n4.92\n4.66\n4.13\n4.06\nMedium-term straight debt\n2\n179\n120\n33\n293\n28\n-\n24\n-\n-\nConvertible\n66\n30\nAustralia\n4.16\n4.18\n4.40\n4.90\n5.91\n5.88\n5.59\n5.70\n5.74\n5.11\n5.14\n-\n-\n-\n-\n-\n-\n-\n-\nSouth Africa\n4.85\n4.55\n4.21\n4.35\n5.35\n5.36\n5.27\n5.39\n5.39\n5.51\n5.72\nInternational bonds, total\n2 405\n4 708\n3 983\n3 344\n5 151\n287\n676\n425\n512\n317\nEuro-dollars\n5.03\n6.58\n10.00\n6.97\n5.58\n5.29\nn.a.\n6.42\n5.19\n5.08\n5.26\na Includes European unit-of-account, European Currency Unit, and £/DM option issues.\nb Includes £/$ option issues.\nP Preliminary\nPage 14 / World Financial Markets / January 1972\nMorgan Guaranty Trust Company / Page 15\nTreasury bill rates\nTreasury bill rates\nbond-equivalent yields, at or near end of month\n9\n10\n1967\n1968\n1969\n1970\n1971\nDec\nDec\nDec\nDec\nJun\nJul\nAug\nSep\nOct\nNov\nDec\n8\n9\nUnited States\n5.09\n6.38\n8.28\n5.03\n5.24\n5.34\n4.56\n4.56\n4.41\n4.25\n3.72\nCanada\n5.95\n6.24\n7.81\n4.44\n3.37\n3.68\n3.91\n4.06\n3.47\n3.37\n3.21\n7\n8\nJapan\n5.71\n5.71\n5.94\n5.81\n5.42\n5.42\n5.17\n5.17\n5.17\n5.17\n5.17\nFrance\nUnited Kingdom\nBelgium\n6\n4.40\n5.00\n8.50\n6.95\n4.80\n4.90\n4.70\n4.60\n4.50\n4.60\n4.80\n7\nFrance\n5.23\n8.41\n10.18\n7.73\n7.17\n6.80\n6.61\n6.96\n6.32\n5.97\n5.68\nGermany\n2.78\n2.78\n5.83\n5.83\n4.30\n4.30\n4.30\n4.30\n3.80\n3.80\n3.28\nUnited States\n5\nItaly\n5.05\n6\n5.05\n5.70\n6.57\n5.80\n5.90\n6.52\n6.30\n5.90\n5.53\n5.41\nNetherlands\nSweden\n4.60\n5.06\n6.25\n6.25\n4.37\n4.00\n4.63\n4.75\n4.75\n4.00\n5.00\n4\n5\nSweden\n6.92\n5.32\n8.69\n8.42\n6.34\n6.09\n6.09\n5.56\n4.79\n3.79\n3.79\nUnited Kingdom\n7.62\n6.90\n7.80\n6.95\n5.68\n5.64\n5.90\n4.78\n4.61\n4.33\n4.46\nBelgium\nCanada\n3\n4\nAustralia\n4.50\n4.50\n4.79\n5.65\n5.37\n5.37\n5.37\n5.37\n5.37\n5.08\n5.08\nSouth Africa\n5.07\n4.71\n4.42\n4.55\n5.58\n5.56\n5.50\n5.62\n5.64\n5.72\n6.04\n2\n3\nJun\nSep\nDec\nMar\nJun\nSep\nDec\nJun\n1970\nSep\n1971\nDec\nMar\nJun\nSep\nDec\n1970\n1971\nRepresentative money market rates\n%\n%\n11\nRepresentative money-market rates\n10\nbond-equivalent yields, at or near end of month\n10\n9\n1967\n1968\n1969\n1970\n1971\nDec\nDec\nDec\nDec\nJun\nJul\nAug\nSep\nOct\nNov\nDec\n9\nEuro-dollars\n8\nGermany\nUnited States\n5.91\n6.96\n9.46\n6.05\n5.65\n5.79\n5.65\n5.65\n5.13\n4.75\n4.49\nCanada\n6.74\n6.61\n9.34\n6.09\n4.30\n4.81\n4.81\n5.06\n4.94\n4.81\n4.42\n8\nUnited Kingdom\n7\nJapan\n8.03\n8.40\n9.25\n8.75\n7.00\n6.50\n6.50\n6.25\n5.75\n5.75\n5.75\nFrance\nBelgium\n4.90\n5.25\n8.75\n7.25\n5.15\n5.30\n5.05\n4.90\n4.80\n4.80\n5.15\n7\n6\nFrance\n4.94\n8.50\n10.88\n7.25\n7.13\n5.88\n6.50\n6.50\n5.81\n5.81\n5.75\nGermany\n4.63\n4.50\n9.13\n8.25\n7.38\n7.63\n7.38\n7.50\n7.25\n6.50\n5.50\nItaly\n3.52\n3.41\n5.00\n7.38\n5.88\n5.75\n5.75\n5.50\n5.38\n5.25\n5.50\n6\n5\nNetherlands\n5.50\n6.13\n9.00\n7.38\n5.10\n4.56\n5.00\n5.56\n5.75\n5.50\n5.50\nBelgium\nNetherlands\n5\nUnited Kingdom\n8.00\n7.75\n9.13\n7.00\n6.25\n6.13\n5.88\n5.38\n5.06\n4.38\n4.63\n4\nAustralia\n5.00\n5.25\n5.75\n6.00\n7.75\n7.25\n7.00\n7.00\n6.50\n6.25\n6.50\nUnited States\nCanada\nSouth Africa\n5.78\n5.37\n5.47\n7.44\n7.23\n7.54\n7.13\n7.96\n7.85\n8.00\n8.68\n4\n3\nEuro-dollars\n6.25\n7.06\n10.13\n6.44\n6.50\n6.69\n8.88\n7.75\n5.94\n6.44\n5.75\n3\n2\n1.38\nJun\nSep\nDec\nMar\nJun\nSep\nDec\nJun\n1970\nSep\nDec\nMar\n1971\nJun\n1970\nSep\nDec\n1971\nPage 16 / World Financial Markets / January 1972\nMorgan Guaranty Trust Company / Page 17\nCommercial bank deposit rates\nCommercial bank deposit rates\nat or near end of month\n10\n10\n1967\n1968\n1969\n1970\n1971\nDec\nDec\nDec\nDec\nJun\nJul\nAug\nSep\nOct\nNov\nDec\nEuro-dollars\n9\n9\nUnited States\n5.50\n6.00\n6.00\n5.63\n5.50\n5.88\n5.38\n5.63\n5.00\n4.75\n4.25\nCanada\n6.25\n6.50\n7.50\n5.50\n4.00\n4.25\n4.75\n5.00\n4.88\n4.63\n4.40\nJapan\n4.00\n4.00\n4.00\n4.00\n4.00\n4.00\n4.00\n4.00\n4.00\n4.00\n4.00\n8\nUnited Kingdom\n8\nBelgium\n4.75\n6.63\n9.25\n7.00\n5.00\n5.31\n5.13\n4.75\n4.50\n4.50\n4.50\nFrance\n4.00\n6.00\n9.00\n6.50\n6.50\n6.75\n6.75\n6.75\n6.75\n6.75\n6.75\nGermany\n4.00\n4.38\n8.63\n7.50\n6.50\n6.75\n6.63\n6.75\n6.50\n6.00\n5.00\n7\n7\nGermany\nItaly\n2.75\n5.50\n7.50\n6.00\n4.75\n4.75\n4.75\n4.75\n4.75\n4.75\n4.75\nNetherlands\n5.63\n6.25\n9.00\n7.00\n4.85\n4.50\n4.80\n5.25\n5.75\n5.50\n5.63\nDenmark\n6.25\n4.75\n7.00\n8.00\n6.50\n6.50\n6.50\n6.50\n6.50\n6.50\n6.50\n6\n6\nNetherlands\nNorway\n2.50\n2.50\n3.00\n3.00\n3.00\n3.00\n3.00\n3.00\n3.00\n3.00\n3.00\nBelgium\nSweden\n5.75\n4.75\n6.75\n6.75\n5.75\n5.75\n5.75\n5.25\n5.25\n4.75\n4.75\nSwitzerland\n4.00\n4.25\n5.00\n5.25\n3.50\n3.50\n2.50\n2.50\n2.00\n1.50\n1.50\n5\n5\nItaly\nUnited Kingdom\n7.88\n7.63\n9.13\n7.00\n6.19\n6.00\n5.75\n5.19\n4.94\n4.25\n4.50\nAustralia\n4.00\n4.25\n5.00\n5.50\n5.50\n5.50\n5.50\n5.50\n5.50\n5.50\n5.50\nUnited States\nSouth Africa\n5.50\n5.00\n5.50\n6.00\n6.75\n6.75\n6.75\n6.75\n6.75\n6.75\n6.75\n4\n4\nEuro-dollars\n6.25\n7.06\n10.13\n6.44\n6.50\n6.69\n8.88\n7.75\n5.94\n6.44\n5.75\nCanada\nSwitzerland\n3\n3\n1.50\nJun\nSep\nDec\nMar\nJun\nSep\nDec\nJun\nSep\nDec\nMar\nJun\nSep\nDec\n1970\n1971\n1970\n1971\nCommercial bank lending rates to prime borrowers\nCommercial bank lending rates to prime borrowers\nat or near end of month\n11\n11\n1967\n1968\n1969\n1970\n1971\nDec\nDec\nDec\nDec\nJun\nJul\nAug\nSep\nOct\nNov\nDec\n10\nUnited States\n6.00\n6.75\n8.50\n6.75\n5.50\n6.00\n6.00\n6.00\n5.75\n5.50\nEuro-dollars\n10\n5.25\nCanada\n6.50\n6.75\n8.50\n7.50\n6.50\n6.50\n6.50\n6.50\n6.00\n6.00\n6.00\nItaly\nJapan\n7.00\n7.04\n7.37\n7.46\n7.33\n7.33\n7.27\n7.22\n7.18\n7.14\n7.10\nBelgium\nFrance\n9\n9\nBelgium\n6.25\n6.50\n10.00\n8.50\n8.00\n8.00\n8.00\n7.50\n7.50\n7.50\n7.50\nFrance\n5.85\n7.85\n10.35\n9.65\n9.05\n9.05\n9.05\n9.05\n9.05\n9.05\n8.65\nGermany\nGermany\n6.00\n6.00\n9.00\n9.00\n8.00\n8.00\n8.00\n8.00\n7.50\n7.75\n7.25\nNetherlands\nItaly\n6.75\n6.50\n8.25\n10.25\n9.00\n9.00\n9.00\n8.75\n8.75\n8.25\n8.25\n8\n8\nNetherlands\n6.50\n7.00\n8.50\n8.50\n8.00\n8.00\n7.50\n7.50\n7.00\n7.00\n7.00\nDenmark\n10.00\n8.50\n11.50\n12.00\n10.50\n10.50\n10.50\n10.50\n10.50\n10.50\n10,50\nUnited Kingdom\n7\n6.00\n6.50\n7.50\n7.50\n7.50\n7.50\n7.50\n7.50\n7.50\n7.50\n7.50\n7\nNorway\nSweden\n8.50\n7.50\n9.50\n10.00\n9.00\n9.00\n9.00\n8.50\n8.50\n8.00\n8.00\nSwitzerland\nSwitzerland\n6.25\n6.25\n6.50\n7.00\n7.00\n7.00\n7.00\n7.00\n7.00\n7.00\n7.00\nCanada\nUnited Kingdom\n8.50\n7.50\n9.00\n8.00\n7.00\n7.00\n7.00\n6.00\n6.00\n5.50\n5.50\n6\n6\nAustralia\n6.75\n7.00\n7.25\n7.75\n7.75\n7.75\n7.75\n7.75\n7.75\n7.75\n7.75\nUnited States\nSouth Africa\n8.50\n8.00\n8.00\n8.50\n9.00\n9.00\n9.00\n9.00\n9.00\n9.00\n9.00\n5\n5\nJun\nSep\nEuro-dollars\n7.13\n7.94\n11.00\n7.32\n7.38\n7.57\n9.76\n8.63\n6.82\n7.32\nDec\nMar\nJun\n6.63\nSep\nDec\nJun\nSep\nDec\nMar\nJun\nSep\nDec\n1970\n1971\n1970\n1971\nPage 18 / World Financial Markets / January 1972\nMorgan Guaranty Trust Company / Page 19\nDomestic government bond yields\nDomestic government bond yields\n%\n%\nlong-term issues, at or near end of month\n11\n12\n1967\n1968\n1969\n1970\n1971\nDec\nDec\nDec\nDec\nJun\nJul\nAug\nSep\nOct\nNov\nDec\n10\n11\nUnited States\n5.48\n5.97\n6.92\n6.42\n6.35\n6.37\n6.12\n5.88\n5.89\n5.94\n5.92\nCanada\n6.54\n7.30\n8.33\n6.99\n7.30\n7.49\n7.07\n6.97\n6.71\n6.54\n6.56\nJapan\n6.98\n7.24\n7.22\n7.19\n7.20\n7.20\n7.22\n7.20\n9\n10\n7.05\n7.14\n7.21\nItaly\nBelgium\n5.23\n5.22\n5.77\n5.49\n5.24\n5.22\n5.21\n5.34\n5.34\n5.32\n5.33\nFrance\n5.60\n6.00\n6.78\n7.64\n7.59\n7.80\n7.69\n7.77\n7.53\n7.37\n7.34\n8\nGermany\n9\nGermany\n6.89\n6.56\n7.38\n7.84\n7.93\n7.92\n7.83\n7.72\n7.63\n7.61\n7.54\nUnited Kingdom\nFrance\nItaly\n6.58\n6.59\n7.30\n8.90\n8.71\n8.73\n8.68\n8.45\n8.17\n8.18\n7.93\nNetherlands\n6.13\n6.34\n7.50\n7.16\n6.75\n6.83\n6.75\n6.76\n6.58\n6.65\n6.83\n7\n8\nCanada\nDenmark\n9.78\n8.78\n10.73\n11.34\n11.45\n10.90\n10.89\n10.92\n10.72\n10.83\nNetherlands\n10.81\nNorway\n4.95\n4.89\n6.30\n6.41\n6.39\n6.40\n6.35\n6.41\n6.42\n6.45\n6.37\n6\n7\nSweden\n6.80\n6.19\n7.27\n7.32\n7.28\n7.29\n7.30\n7.10\n7.11\n7.12\n7.14\nSwitzerland\nSwitzerland\n4.55\n4.35\n5.34\n5.70\n5.42\n5.45\n5.31\n5.09\n4.97\n4.86\n4.99\nUnited Kingdom\n7.14\n8.03\n8.85\n9.80\n9.22\n9.36\n9.12\n8.49\n8.65\n8.54\n8.45\nBelgium\n5\n6\nAustralia\n5.25\n5.02\n6.00\n7.00\n7.00\n7.00\n7.00\n7.00\n6.75\n6.65\n6.50\nUnited States\nSouth Africa\n6.46\n6.44\n6.42\n7.75\n8.50\n8.50\n8.50\n8.50\n8.50\n8.50\n8.50\n4\n5\nJun\nSep\nDec\nMar\nJun\nSep\nDec\nJun\nSep\nDec\nMar\nJun\nSep\nDec\n1970\n1971\n1970\n1971\nDomestic corporate bond yields\nDomestic corporate bond yields\n%\n%\nlong-term issues, at or near end of month\n12\n13\n1967\n1968\n1969\n1970\n1971\nDec\nDec\nDec\nDec\nJun\nJul\nAug\nSep\nOct\nNov\nDec\n11\n12\nUnited States\n6.74\n7.04\n8.95\n7.90\n8.05\n8.25\n7.60\n7.75\n7.55\n7.50\n7.30\nCanada\n7.59\n8.18\n9.29\n8.83\n8.52\n8.56\n8.41\n8.32\n8.21\n8.14\n8.24\n10\n11\nUnited Kingdom\nJapan\n8.57\n8.66\n9.07\n9.20\n7.95\n7.61\n7.49\n7.44\n7.42\n7.49\n7.38\nItaly\nBelgium\n6.05\n5.92\n6.96\n6.92\n6.40\n6.18\n6.35\n6.32\n6.07\n6.09\n6.12\n9\n10\nFrance\n7.52\n7.76\n8.71\n8.83\n8.74\n8.65\n8.68\n8.95\n8.74\n8.77\n8.69\nGermany\n6.95\n6.43\n7.60\n7.77\n7.90\n8.00\n7.83\n7.74\n7.62\n7.59\n7.59\nFrance\nItaly\n7.15\n7.12\n8.51\n9.74\n9.13\n9.15\nn.a.\n8.92\n8.62\n8.46\nNetherlands\n8.72\n8\n9\nNetherlands\n6.71\n6.98\n8.54\n7.88\n7.58\n7.70\n7.60\n7.91\n8.05\n7.65\n7.91\nCanada\nGermany\nNorway\n5.79\n5.75\n7.42\n6.81\n6.74\n6.76\n6.76\n6.77\n6.78\n6.70\n6.77\n7\n8\nSweden\n7.49\n6.73\n8.57\n7.48\n7.39\n7.41\n7.42\n7.22\n7.21\n7.22\n7.22\nBelgium\nSwitzerland\n5.11\n5.13\n5.58\n6.09\n5.74\n5.72\n6.01\n5.63\n5.55\n5.30\n5.42\nUnited Kingdom\n7.97\n9.16\n10.70\n10.84\n10.38\n10.26\n9.99\n9.36\n9.22\n9.09\n9.19\nUnited States\n6\n7\nAustralia\n7.25\n7.50\n8.25\n9.25\n9.25\n9.25\n9.25\n9.00\n9.00\n8.75\n8,50\nSwitzerland\nSouth Africa\n7.25\n7.50\n7.75\n9.25\n9.75\n9.75\n9.75\n9.75\n9.75\n9.75\n9.75\n5\n6\nJun\nSep\nDec\nMar\nJun\nSep\nDec\nJun\nSep\nDec\nMar\nJun\nSep\nDec\n1970\n1971\n1970\n1971\nMorgan Guaranty Trust Company / Page 21\nPage 20 / World Financial Markets / January 1972\nKey to data in charts and tables\nKey to data in tables and charts - continued\nI. Rates and yields by country\nBank lending rate to prime borrowers\nGovernment bond yield average of\nlowest rate for commercial bank loans\nyields on nine outstanding 6% bonds of\nSouth Africa\nCorporate bond yield (Financial\nNew-issue volume\nAustralia\nand advances, including a commission\npublic-sector entities.\nDay-to-day money rate National Fi-\nTimes)-Actuaries 20-year debentures\nData include all publicly announced is-\nDay-to-day money rate - approximate ef-\nof 0.375 per quarter on the total line\nCorporate bond yield average of yields\nnance Corporation call money rate.\nand loans.\nsues, whether publicly or privately\nfective interest rate in the authorized\nof credit.\non ten outstanding bonds of leading\nplaced, but exclude those where the\nshort-term money market.\nGovernment bond yield 41/2% govern-\nItalian industrial companies.\nTreasury bill rate 3-month Treasury\nment bond of 1997.\nbills at tender.\nUnited States\ninvestor is a monetary authority.\nTreasury bill rate new issues of 13-\nweek Treasury notes.\nJapan\nRepresentative money-market rate 90-\nDay-to-day money rate - effective Fed-\nRepresentative money-market rate\nFrance\nday bank acceptances.\neral funds rate.\nmonth prime finance company paper.\nDay-to-day money rate - Tokyo call\nBank deposit 3-month time de-\nTreasury bill 3-month Treasury\nCategories of borrower\nDay-to-day money rate call money\nmoney, unconditional, lenders' rate.\nBank deposit rate - 3-month certificates\nposits at merchant banks.\nbills.\nof deposit.\nTreasury bill rate - 60- to 62-day non-\nU. S. companies include both parent\nagainst private paper.\nBank lending rate to prime borrowers\nRepresentative money-market rate 3-\nBank lending rate to prime borrowers\nTreasury bill rate new issues of one-\ninterest-bearing discount government\ncompanies and their affiliates, either\nbills.\nunsecured overdraft rate for prime\nmonth prime industrial paper.\ndomestic or foreign.\napproximate overdraft rate for prime\nyear Treasury bills.\nRepresentative money-market rate To-\nborrowers.\nBank deposit rate 3-month negotiable\nOther companies include private com-\nborrowers. Rate for prime borrowers\nRepresentative money-market rate 3-\nusually 0.25% to 0.75% below the\nmonth interbank money against private\nkyo call money, over-month, lenders'\nGovernment bond yield 61/2% govern-\ncertificates of deposit issued by Morgan\npanies domiciled outside the United\nrate.\nment bonds of 1994.\nGuaranty Trust Company.\nStates and their affiliates.\nmaximum overdraft rate; rate shown is\npaper.\n0.50% below.\nBank deposit rate - 3-month time de-\nBank deposit rate 3-month time de-\nCorporate bond yield an approximate\nBank lending rate to prime borrowers\nState enterprises include public agen-\nposits of F 100,000 or more. New series.\nposits.\nyield based on average yields of long-\nminimum commercial lending rate of\ncies.\nGovernment bond yield 20-year gov-\nernment bonds.\nBank lending rate to prime borrowers\nBank lending rate to prime borrowers\nterm bonds of the semipublic ESCOM,\nMorgan Guaranty Trust Company. In ad-\nGovernments include central and local\noverdraft rate for prime borrowers, in-\naverage rate on loans and discounts of\nplus %.\ndition, compensating balances are re-\nCorporate bond yield-long-term secured\ngovernments.\ncluding a commission of 0.05% per\ncity banks, computed by the Bank of\nquired.\ndebentures, indicated by Australian Uni-\nted Corporation.\nJapan. In addition, compensating bal-\nSweden\nGovernment bond yield Morgan Guar-\nmonth on highest debit balance during\nthe month.\nances may be required.\nTreasury bill rate new issues of 3-\nanty 20-year U.S. Government Bond\nBelgium\nGovernment bond average yield\nmonth Treasury bills.\nIndex.\nTypes of security\nGovernment bond yield Institut Na-\nDay-to-day money rate call money.\ntional de la Statistique et des Etudes\non outstanding maturities of 61/2% na-\nBank deposit rate deposits at 6-\nCorporate bond yield - Morgan Guar-\nLong-term straight debt 8 years or more.\nTreasury bill rate 3-month Treasury\nEconomiques (INSEE) tax-adjusted yield\ntional government bonds.\nmonths' notice.\nanty index of new issue yields for Aa\non 5% government perpetual bond.\nCorporate bond yield average of yields\nBank lending rate to prime borrowers\nutility bonds with five-year call pro-\nMedium-term straight debt 3 to 7 years.\ncertificates.\nCorporate bond yield INSEE tax ad-\non outstanding Nippon Telegraph & Tel-\ntection.\nCertificate of deposit 3 years or more.\nRepresentative money-market rate 4-\noverdraft rate for prime borrowers, in-\nmonth Fonds des Rentes certificates.\njusted average yield on outstanding pri-\nephone interest-bearing yen debentures.\ncluding a fee of 1% per annum prior to\nConvertible includes issues with war-\nBank deposit rate special maximum\nMay 1970 (11/4% thereafter) on total\nrants.\nvate corporate bonds.\nrate for 3-month time deposits in large\namount of credit authorized.\nNetherlands\namounts.\nGovernment bond yield 15-year gov-\nGermany\nBank lending rate to prime borrowers\nDay-to-day money rate open-market\nernment bonds.\nII. Euro-dollar rates\nYields\nprime overdraft rate.\nDay-to-day money rate interbank call\ncall money in Amsterdam.\nCorporate bond yield Central Statisti-\nGovernment bond yield Kredietbank 10-\nmoney.\nTreasury bill 3-month Treasury\ncal Bureau average yield on industrial\nDay-to-day money rate prime banks'\nYields are calculated to the nearest day\nto 20-year government bond average\nTreasury bill rate 60- to 90-day Treas-\nbills.\nbonds. New series as of 1970.\nbid rate for call money in London.\nof maturity. Interest on bonds with an-\nnual coupons is discounted semiannu-\nyield net of withholding tax.\nury bills as sold by German central\nRepresentative money-market rate 3-\nRepresentative money market rate\nSwitzerland\nally for comparability in computation of\nCorporate bond Kredietbank 10-\nbank.\nmonth municipal loans.\nprime banks' bid rate for 3-month\nyield. This applies with respect to orig-\nto 20-year private bond average yield\nRepresentative money-market rate 3-\nBank deposit rate 3-month time de-\nDay-to-day money rate call money.\ndeposits in London.\ninal offering yields as well as secondary\nnet of withholding tax.\nmonth interbank deposits.\nposits in large amounts.\nBank deposit rate 3-month time de-\nBank deposit rate prime banks' bid\nmarket yields.\nCanada\nBank deposit rate 3-month time de-\nBank lending rate to prime borrowers\nposits.\nrate for 3-month deposits in London.\nSecondary market yield indices are sim-\nposits in large amounts.\noverdraft rate for prime borrowers.\nDay-to-day money rate-chartered banks'\nBank lending rate to prime borrowers\nBank lending rate to prime borrowers\nple arithmetic averages of end-of-month\nBank lending rate to prime borrowers\nGovernment bond yield Central Bureau\noverdraft rate for prime borrowers, in-\nrepresentative average rate for 3-month\nday-to-day loans.\nyields for groups of selected straight-\napproximate effective approved over-\nof Statistics (CBS) average yield on nine\ncluding commission of 0.25% per quar-\nloans to prime borrowers.\ndebt securities. Yield indices for six\nTreasury bill rate 3-month Treasury\ndraft rate for prime borrowers.\nbills at tender.\n3% to 31/2 % government bonds.\nter on highest debit balance in quarter.\ncategories of bonds have been calcu-\nGovernment bond yield Frankfurter All-\nRepresentative money-market rate 3-\nCorporate bond yield CBS average\nGovernment bond yield Swiss Confed-\nlated according to borrower and cur-\ngemeine Zeitung (FAZ) 7% public au-\nmonth prime finance company paper.\nyield on three 4½ % to 43/4 % corporate\neration bond average.\nrency. They are based on issues of\nthority bond average.\nbonds.\ngood-quality, well-known borrowers of-\nBank deposit rate 3-month time de-\nCorporate bond yield FAZ 6% indus-\nCorporate bond yield average of yields\nIII. International bonds\nfered in 1970 and earlier.\nposits.\ntrial bond average.\non outstanding bonds of five leading\nBank lending rate to prime borrowers -\nNorway\nSwiss companies.\nDefinitions\nThe number of issues represented in\neach of the indices is as follows:\nprime rate. In addition, compensating\nBank deposit rate 3-month time de-\nAn international bond issue is one sold\nbalances sometimes are required.\nItaly\nposits. Higher rates may be negotiated\nUnited Kingdom\noutside the country of the borrower. It\nLong-term, U.S. companies, U.S. dollar -\nGovernment bond yield Bank of Can-\nTreasury bill rate - yield on 5% Trea-\nfor 6-month or more time deposits in\nDay-to-day moneyrate day-to-day loans.\nmay be either a Euro-bond issue or a\nten Euro-bond issues.\nada average yield on all direct govern-\nsury bonds maturing April 1, 1973.\nlarge amounts.\nTreasury bill rate 91-day Treasury bills\nforeign bond issue.\nLong-term, U.S. companies, German\nment bonds due or callable in 10 years\nRepresentative money-market rate in-\nBank lending rate to prime borrowers\nat tender.\nA Euro-bond issue is one underwritten\nmark ten Euro-bond issues.\nor over.\nterbank deposits of up to one-month\noverdraft rate, including a charge of\nRepresentative money-market rate 3-\nby an international syndicate and sold\nLong-term, U.S. companies, Swiss franc\nCorporate bond yield McLeod, Young,\nmaturity.\n0.375% per quarter on the total line of\nmonth local authority deposits.\nprincipally in countries other than the\n- ten foreign bond issues.\nWeir Co., Ltd., average yield on ten in-\ncredit.\nBank deposit rate Time deposits of\ncountry of the currency in which the\ndustrial bonds.\nBank deposit rate 3-month time de-\nLong-term, European companies, U.S.\nL 100 million or more.\nGovernment bond yield 5% govern-\nissue is denominated.\ndollar - ten Euro-bond issues.\nposits.\nDenmark\nBank lending rate to prime borrowers\nment bond of 1996.\nA foreign bond issue is one underwritten\nBank lending rate to prime borrowers\nLong-term, European companies, Ger-\nBank deposit rate time deposits of 3-\nunsecured overdraft rate for prime\nCorporate bond yield 53/4 Dalen\nby a syndicate composed of members\nman mark - ten Euro-bond issues.\nmonths' notice.\nborrowers.\nunsecured overdraft rate for prime\nPortland-Cement bond of 1969-84.\nfrom one country, sold principally in\nborrowers.\nLong-term, governments, U.S. dollar\nthat country, and denominated in the\nsix Euro-bond issues (governments of\nGovernment bond yield 31/2% war loan.\ncurrency of that country.\nAustralia, Denmark, and Italy.\nPage 22 / World Financial Markets / January 1972\nMorgan Guaranty Trust Company / Page 23\nSTRICTLY CONFIDENTIAL (FR)\nJanuary 28, 1972\n1971 U.S. BALANCE OF PAYMENTS\n(millions of dollars, seasonally adjusted)\n1971\nYear e/\nQtr. 1\nQtr. 2\nQtr. 3\nQtr. 4e/\nExports\n42,753\n11,016\n10,706\n11,466\n9,565\nImports\n-45,659\n-10,768\n-11,767\n-12,026\n-11,098\nTRADE BALANCE\n-2,906\n+248\n-1,061\n-560\n-1,533\nServices, net\n+2,838\n+922\n+1,087\n+554\n+275\nBALANCE ON GOODS & SERVICES\n-68\n+1,170\n+26\n-6\n-1,258\nRemittances & pensions\n-1,455\n-342\n-355\n-388\n-370\nU.S. Gov't. grants & credits 1/\n-4,221\n-1,108\n-1,059\n-1,059\n--995\nPrivate long-term capital\nU.S. capital\n-6,790\n-1,724\n-1,964\n-1,782\n-1,320\nForeign capital\n+1,681\n+722\n+116\n+71\n+772\nBALANCE ON CURRENT ACCOUNT\nAND LONG-TERM CAPITAL\n-10,853\n-1,282\n-3,236\n-3,164\n-3,171\nPrivate short-term nonliquid capital\n-2,826\n-384\n-394\n-1,167\n-881\nPrivate liquid capital\n-7,806\n-3,029\n+51\n-2,828\n-2,000\nErrors & omissions\n-9,265\n-1,018\n-2,331\n-5,141\n-775\nOFFICIAL RESERVE TRANSACTIONS\nBALANCE (ex. SDR allocation\n-30,750\n-5,713\n-5,910\n-12,300\n-6,827\n1/ Includes U.S. Gov't. nonliquid liabilities to other than official reserve holders.\ne/ Partly estimated.\nSource: Inter-agency balance of payments projection committee, 1/26/72.\nFORD & LIBRARY GERALD\nSTRICTLY CONFIDENTIAL (FR)\nJanuary 28, 1972\nU.S. BALANCE OF PAYMENTS\n(millions of dollars)\n1972 p/ 1/\nBefore\nAfter\nExchange Rate\nExchange Rate\n1969\n1970\n1971\nChanges\nChanges\nExports\n36,490\n41,980\n42,753\n45,705\n47,260\nImports\n-35,830\n-39,870\n-45,659\n-50,770\n-50,325\nTRADE BALANCE\n+660\n+2,110\n-2,906\n-5,065\n-3,065 (+1,000)\nServices, net\n+1,351\n+1,482\n+2,838\n+3,300\n+3,450\nBALANCE ON GOODS & SERVICES\n+2,011\n+3,592\n-68\n-1,765\n+385 (±1,000)\nRemittances and pensions\n-1,266\n-1,410\n-1,455\n-1,510\n-1,510\nU.S. Gov't. grants & credits 2/\n-3,574\n-3,768\n-4,221\n-4,405\n-4,405\nPrivate long-term capital\nU.S. capital\n-4,855\n-5,781\n-6,790\n-5,760\n-5,760\nForeign capital\n+4,805\n+4,328\n+1,681\n+4,730\n+4,730\nBALANCE ON CURRENT ACCOUNT\nAND LONG-TERM CAPITAL\n-2,879\n-3,038\n-10,853\n-8,710\n-6,560 (±1,000)\nPrivate short-term nonliquid capital\n-602\n-545\n-2,826\n-100\n-100\nPrivate liquid capital\n+8,786\n-6,000\n-7,806.-\n?\n?\nErrors & omissions\n-2,603\n-1,104\n-9,265\n?\n?\nOFFICIAL RESERVE TRANSACTIONS\nBALANCE (ex. SDR allocations)\n+2,702\n-10,688\n-30,750\n?\n?\n1/ Projected 1972 data are presented before and after allowing for exchange rate changes.\n2/ Includes U.S. Gov't. nonliquid liabilities to other than official reserve holders.\ne/ Partly estimated.\np/ Projected.\nSource: Inter-agency balance of payment projection committee, 1/26/72.\nFORD & GERALD LIBRARY\nJanuary 28, 1972\nSTRICTLY CONFIDENTIAL (FR)\nTable 1\nU.S. BALANCE OF PAYMENTS\n(In millions of dollars)\n1971\np/\np/\nOI\nQII\nQIII\nQIV\nYear\n1. Change in liabilities, dec., (-)\n2,039\n5,748\n9,185\n3,595\n20,567\nA. To foreign official agencies 1/\n4,573\n5,624\n11,306\n6,182\n27,685\nB. To private foreigners, liquid\n-2,534\n124\n-2,121\n-2,587\n-7,118\nOf which to foreign branches\nof U.S. banks\n(-1,905)\n(46)\n(-1,630)\n(-1,398)\n(-4,887)\n2. U.S. reserve assets, inc., (-)\n862\n838\n1,373\n-8\n3,065\nGold stock\n109\n456\n300\n1\n866\nSpecial drawing rights\n2/125\n196\n150\n-3\n468\nReserve position in IMF\n255\n252\n851\n-8\n1,350\nConvertible currencies\n373\n-66\n72\n2\n381\n3. Liquid claims, inc., (-)\n-341\n10\n-446\nn.a.\nn.a.\nBalances (deficit -) 2/\nOfficial settlements, N.S.A. (1A+2)\n-5,435\n-6,462\n-12,679\n-6,174\n-30,750\n11\n\"\nS.A.\n,\n-5,713\n-5,910\n-12,300\n-6,827\nLiquidity, N.S.A. (1+2.)\n-2,901\n-6,586\n-10,558\n-3,587\n-23,632\n11\n, S.A.\n-2,999\n-5,871\n-9,992\n-4,770\nNet liquidity, N.S.A. (1+2+3)\n-2,560\n-6,596\n-10,112\nn.a.\nn.a.\n11\n11\nS.A.\n,\n-2,684\n-5,961\n-9,472\nn.a.\nn.a.\np/ Preliminary.\nn.a. = Not available.\n1/ Includes IMF gold investment and deposits.\n2/ Excludes allocation of $717 million of SDRs by IMF on January 1, 1971.\nNote.--Data for fourth quarter and year are partly estimated.\nFORD & LIBRARY GERALD\nJan. 27, 1972\nJune 29, 1971.\nStrictly Confidential (F.R.)\n1960-1971\nFinancing of U.S. Balance of Payments on\nOfficial Reserve Transactions Basis N.S.A.\n(In millions of dollars)\nOut-\nstanding\n1971\nNov.30,\n1960\n1961\n1962\n1963\n1964\n1965\n1966\n1967\n1968\n1969\n1970\nJAN-NOV. TI\n1971\n[]\nBalance on offic. res. trans. (deficit, -)\n-3,403\n-1,348\n-2,702\n-2,011\n-1,564\n-1,293\n270\n-3,417\n1,641\n2,700\n-10,688\n-27,575\nFinanced by changes in:\nU.S. Reserve Assets (increase, -)\n2,145\n606\n1,533\n377\n171\n1,222\n568\n52\n-880\n-1,187\n3,344\n3,073\n12,131.\nGold Stock\n1,703\n857\n890\n461\n125\n1,665\n571\n1,170\n1,173\n-967\n787\n866\n10,206\nNet gold sales to or açquisitions from (-)\nUnited Kingdom 2/\n550\n306\n387\n-329\n-618\n-150\n-80\n879\n835\n--\n:\n-\nFrance\n173\n--\n456\n518\n405\n884\n601\n--\n-600\n-325\n:\n473\nOther Western Europe\n995\n448\n262\n210\n301\n565\n138\n101\n434\n-645\n204\n323\nOther countries\n251\n216\n-272\n-7\n-52\n23\n-51\n51\n449\n13\n427\n48\nInternational Monetary Fund\n-300\n-150\n--\n--\n--\n225\n-177\n-22\n3\n-10\n156\n22\nNet sales to domestic industrial users\n34\n37\n57\n69\n89\n118\n140\n161\n52\n--\n:\nI\nSpecial drawing rights\n--\n--\n--\n--\n--\n--\n--\n--\n--\n:\n16\n468\n1,100\nReserve position in IMF\n442\n-135\n626\n29\n266\n-94\n537\n-94\n-870\n-1,034\n389\n1,353\n582\nConvertible currencies\n--\n-116\n17\n-113\n-220\n-349\n-540\n-1,024\n-1,183\n814\n2,152\n386\n243\nSterling\n--\n--\n--\n-15\n-247\n-394\n-301\n-898\n-961\n663\n1,847\n306\n-\nFrench francs\n--\n--\n-1\n--\n-25\n25\n--\n--\n-432\n235\n199\n-\nOther\n--\n-116\n18\n-98\n52\n20\n-239\n-126\n210\n-84\n106\n80\n243\nLiabilities to for. offic. institutions (dec., )\n1,258\n742\n1,169\n1,634\n1,393\n71\n-838\n3,365\n-761\n-1,513\n7,344\n24,502\n48910\nLiquid:\n1,258\n742\n919\n1,673\n1,075\n-18\n1,595\n2,046\n-3,101\n-517\n7,619\n24,955\nChstiti\nIMF gold investment and deposits\n300\n--\n--\n--\n--\n34\n177\n22\n-3\n-11\n-453\n- 22\n544\nMarketable U.S. Govt. obligations\nBills and certificates\n569\n-340\n1,450\n-288\n145\n-748\n-450\n481\n-1,493\n-1,554\n7,993\n11,816\n23,332\nBonds and notes\n-100\n14\n-139\n466\n-58\n-20\n-245\n48\n-379\n-79\n-39\n1,452\n1,747\nNonmarketable U.S. Treasury securities\nCertificates payable in dollars\n--\n450\n-90\n59\n-139\n380\n-420\n1,188\n-1,006\n-88\n1,517\n4,888\n6,739\nCerts. payable in for. currencies\n--\n46\n2,\n-18\n-30\n--\n517\n-365\n311\n-261\n-54\n636\n158\nBonds and notes 3/\n--\n--\n703\n376\n122\n-945\n455\n-10\n-163\n-126\n5,000\n5,000\nOther short-term\n489\n572\n-304\n751\n781\n214\n-229\n217\n-521\n1,639\n-1,219\n1,185\n7,027\nNonliquid:\n--\n--\n250\n-39\n318\n89\n757\n1,319\n2,340\n-996\n-275\n-453\n4,363\nNon-marketable Treasury bonds and notes\nPayable in dollars\n--\n--\n--\n13\n191\n130\n-6\n163\n1,176\n-237\n1,049\n74\n2,554\nPayable in foreign currencies\n--\n--\n251\n-74\n-20\n--\n-46\n250\n601\n150\n-542\n-\n1,597\nCertain other liab. reported by U.S. Govt.\n--\n--\n-1\n13\n-2\n-7\n20\n39\n29\n-75\n28\n-8\n38\nReported by U.S. banks\n--\n--\n--\n9\n149\n-34\n789\n867\n534\n-834\n-810\n-519\n174\nN.S.A. Not seasonally adjusted. p/ Preliminary. Estimate.\nDeposits (demand and time), time certificates of deposit, bankers' accept-\n1/ Excludes allocations of SDRs by IMF; $867 million on January\n1\nances and commercial paper.\n1970; and $717 million on January 1, 1971.\n5/ Principally time deposits and certificates of deposit with original maturities\n2/ For period 1963-1968 includes U.S. share of Gold Pool settlement.\nmore than one year.\n3/ Payable in foreign currencies except the following which are payable\nFor payment to International Monetary Fund.\nin dollars: 1963, $150 million; 1966, -$125 million; and 1969, -$25 million:\nand 1971, 5,000 million\nGERALD\nLIBRARY\nJanuary 28, 1972.\nHistorical Summary of U.S. International\nReserve Position 1946-1971\n(In billions of dollars)\nGERALD FORD LIBRARY\nReserve assets\nReserve liabilities\nTo official\nTo\ninstitutions\nInternational\nin foreign\nMonetary\nEnd of period\nTotal\nGold 1/\nOther\nTotal\ncountries\nFund /\n1946\n20.7\n20.7\n--\n3.8\n3.8\n:\n1947\n24.0\n22.9\n1.1\n2.2\n2.2\n:\n1948\n25.8\n24.4\n1.4\n3.1\n3.1\n--\n1949\n26.0\n24.6\n1.4\n3.1\n3.1\n:\n1950\n24.3\n22.8\n1.5\n4.6\n4.6\n:\n1951\n24.3\n22.9\n1.4\n3.9\n3.9\n:\n1952\n24.7\n23.3\n1.4\n5.3\n5.3\n:\n1953\n23.5\n22.1\n1.4\n6.2\n6.2\n:\n1954\n23.0\n21.8\n1.2\n7.2\n7.2\n:\n1955\n22.8\n21.8\n1.0\n7.8\n7.8\n--\n1956\n23.7\n22.1\n1.6\n9.0\n8.8\n.2\n1957\n24.8\n22.9\n1.9\n8.9\n8.7\n.2\n1958\n22.5\n20.6\n1.9\n9.5\n9.3\n.2\n1959\n21.5\n19.5\n2.0\n10.6\n10.1\n.5\n1960\n19.4\n17.8\n1.6\n11.9\n11.1\n.8\n1961\n18.8\n16.9\n1.9\n12.6\n11.8\n.8\n1962\n17.2\n16.1\n1.1\n13.6\n12.8\n.8\n1963\n16.8\n15.6\n1.2\n15.2\n14.4\n.8\n1964\n16.7\n15.5\n1.2\n16.6\n15.8\n.8\n1965\n15.5\n13.8\n1.7\n16.7\n15.8\n.8\n1966\n14.9\n13.2\n1.7\n15.9\n14.9\n1.0\n1967\n14.8\n12.7\n2.1\n19.3\n18.3\n1.0\n1968\n15.7\n10.9\n4.8\n18.5\n17.4\n1.0\n1969\n17.0\n11.9\n5.1\n17.0\n16.0\n1.0\n1970\n14.5\n11.1\n3.4\n24.4\n23.8\n.6\n1971 Mar.\n14.3\n11.0\n3.3\n29.0\n28.4\n.6\nJune\n13.5\n10.5\n3.0\n34.6\n34.0\n.5\nSept.\n12.1\n10.2\n1.9\n45.9\n45.4\n.5\nNov.\n12.1\n10.2\n1.9\n48.9\n48.4\n.5\nDec.\n12.2\n10.2\n2.0\n*52.1\n* 51.6\n.5\nIncludes (a) gold sold to the United States by the International Monetary\nFund with the right of repurchase, and (b) gold deposited by the IMF to mitigate\nthe impact on the U.S. gold stock of foreign purchases for the purpose of making\ngold subscriptions to the IMF under quota increases.\n2/ U.S. Government obligations at cost value and funds awaiting investment\nobtained from proceeds of sales of gold by the IMF to the United States to acquire\nincome-earnings assets. Upon termination of investment, the same quantity of gold\ncan be reacquired by the IMF. Beginning 1966 includes gold deposit liability\nto IMF.\n* Strictly Confidential (F.R.); represents preliminary estimate.\nStrictly Confidential (F.R.)\nJan. 27,1972\nJune 29, 1971\nChanges in Liabilities to Foreign Official Institutions, By Country-1960-1971\n(In millions of dollars)\n1971 p/\nOutstanding\n1960\n1961\n1962\n1963\n1964\n1965\n1966\n1967\n1968\n1969\n1970\nJAN-NOV.\nNov. 30, 1971\nTotal: Increase or decrease (-)\n1,258\n742\n1,169\n1,634\n1,393\n71\n-838\n3,365\n-761\n-1,513\n7,344\n24,502\n48,910\nWestern Europe\n742\n1,061\n91\n1,089\n851\n-499\n-1,100\n2,549\n-2,262\n-951\n6,533\n14,507\n28,142\nGermany\n1,702\n-640\n-123\n559\n-745\n-587\n600\n141\n671\n-1,673\n6,151\n3,320\n10,946\nItaly\n-469\n345\n329\n-612\n589\n298\n-234\n520\n-1,162\n-252\n474\n598\n1,636\nFrance\n-67\n412\n203\n343\n70\n-615\n-294\n273\n-357\n-211\n808\n1,401\n2,330\nBelgium\n7\n164\n-118\n224\n50\n-34\n-5\n167\n-384\n172\n84\n255\n606\nNetherlands\n22\n-119\n39\n123\n14\n-28\n8\n232\n-363\n115\n338\n- 391\n169\nTotal EEC\n1,195\n162\n330\n637\n-22\n-966\n75\n1,333\n-1,595\n-1,849\n7,855\n5,183\n15,687\nSwitzerland\n-87\n157\n88\n91\n179\n-192\n-47\n191\n368\n-49\n249\n2.443\n3,461\nUnited Kingdom\n189\n482\n-638\n22\n145\n897\n-718\n480\n-402\n-128\n-444\n5,254\n5,443\nSweden\n9\n180\n80\n-30\n141\n-22\n22\n-179\n-61\n-63\n63\n272\n645\nTotal major European countries\n1,306\n981\n-140\n720\n443\n-283\n-668\n1,825\n-1,690\n-2,089\n7,723\n13,152\n25,236\nOther Western Europe\n-564\n80\n231\n369\n408\n-216\n-432\n724\n-572\n1,138\n-1,190\n1,355\n2,906\nCanada\n36\n167\n723\n-58\n23\n-110\n-369\n-23\n557\n-242\n1,327\n759\n3,710\nJapan\n532\n-427\n356\n78\n-46\n33\n-53\n-96\n692\n72\n514\n10,022\n12,823\nLatin America\n39\n-166\n103\n146\n230\n266\n-245\n270\n282\n24\n-238\n- 345\n1,349\nAll other countries\n-391\n107\n-103\n366\n337\n354\n732\n604\n-56\n-480\n-367\n- 411\n2,304\n38\nCertain non-liquid liabilities\n--\n--\n-1\n13\n-2\n-7\n20\n39\n29\n75\n28\n- 8\nreported by U.S. Government 1/\n- 22\n544\nIMF Gold investment and deposits\n300\n--\n--\n--\n--\n34\n177\n22\n-3\n-11\n-453\nNot reported by country.\nPreliminary.\nFORD is LIBRARY GERALD\n6\nFebruary 4, 1972\nTo: Mr. Ralph C. Bryant\nSubject: Chairman's Statements on\nFrom: Samuel Pizer sp\nU.S. Balance of Payments in 1971.\nI have looked through the Chairman's statements of May 19,\n1971 before the Senate Committee on Banking, Housing and Urban\nAffairs, and of June 30, 1971 before the Subcommittee on Foreign\nEconomic Policy of the JEC.\nThe May testimony took the line that although the underlying\nimbalance was large it was nowhere near large enough to have created\na crisis -- so that the focus was placed on short-term capital flows\nand the events leading to the German float on May 10. The conclusion\nstated that there was no reason for gloom -- looking ahead -- and cites\nseveral factors that would be helpful. These factors included:\na) Relatively good price performance, especially if a stronger\nincomes policy is adopted here.\nb) Rising investment income.\nc) Foreign purchases of U.S. stocks.\nFORD if LIBRARY CERALD\nd) Reductions in military expenditures.\ne) The fact that the bulk of our short-term capital flows\nwas behind us because the branch liabilities were largely liquidated.\nFinally, there was mention of the need for surplus countries\nto see their balances change.\nIn the June statement, much more stress was put on the basic\nimbalance, though it was suggested that it had not broken out of the\nMr. Ralph C. Bryant\n-2-\nrange of recent years. Again emphasis was put on the fact that\nthe underlying imbalance had been overshadowed by short-term\ncapital movements. By June 30 the fact that the trade balance had\nbeen in deep deficit in April and May was known (at the time of the\nMay 1.9 speech only the January-March data were available, still\nshowing small surpluses) and the statement stresses our trading\ndifficulties.\nLooking ahead, the statement mentioned much the same list\nof favorable elements cited in May, but took the view that since a\nrepetition of large capital outflows was unlikely the deficit\nshould subside. However, the statement also says (page 13) that\npolicies followed since 1958 were insufficient to restore equilibrium\nand that decisive steps needed to be taken to correct the situation.\nMain emphasis was put on price stability and the conviction that\nspecific policies to moderate price and wage increases were necessary.\nStress was put on the need for multilateral actions including\n(1) reduce differences in credit conditions, (2) investment outlets\nfor official reserve holders, (3) further role for the SDR (4)\nimprove the adjustment process.\nIn connection with the last point, the need for more flexible\nexchange rates and wider margins is stressed, for the first time, I\nbelieve. The closing of the statement rejects complacency but\nemphasizes the fundamental strength of the United States.\nFORD is LIBRARY GERALD\nMr. Ralph C. Bryant\n-3-\nIn the light of what has happened since June 30, how do\nthese statements stand up?\n1) They were among the first to point to the worsening\nunderlying condition of the trade balance and to warn that new,\ndecisive policies were necessary. But, in common with other analyses\nbeing made at that time, the speed and depth of the deterioration were\nnot yet fully appreciated.\n2) At the time, there was a general feeling that after the\nGerman and other exchange rate changes of May the flow of short-term\ncapital would be stabilizing, giving a breathing space for adjustment.\nIn fact, in June there was an official settlements surplus of over $1\nbillion. However, once the DM rate moved the market began to focus\non other currencies that had not appreciated, and a self-reinforcing\nspeculative splurge ensued. This went far beyond the final liquidation\nof U.S. bank liabilities to branches noted in the statements, and\ninvolved huge increases, largely unrecorded, of U.S.-owned assets\nabroad.\nIn short, the statements were quite right to point out that\nthe extent of the underlying U.S. imbalance in the first half of the\nyear was being exaggerated by short-term capital flows, but wrong in\nassuming that speculation had run its course.\n3) The June statement in particular mentioned pointedly the\ninadequacy of conventional monetary and fiscal policies for dealing with\nGERALD FORD LIBRARY\nMr. Ralph C. Bryant\n-4-\npresent price and wage problems, and advocated strongly that\nspecific actions should be taken.\n4) The June statement for the first time, I believe,\ncontained a strong plea for exchange rate adjustments. In view of\nthe exchange crisis that had just occurred, and the delicacy in any\ncase in advising other countries to change their exchange rates, it\nis difficult to see how the statements could have been any stronger\nor more pointed on that subject.\n5) The June statement contained the leading elements of the\nAugust 15 actions -- specific action on prices and wages and need\nfor exchange rates to change.\n6) The principal failure of judgment about the underlying\nsituation is that the list of factors mentioned that would be helpful\nis very largely a list of factors that will be helpful in the longer\nrun, but could not be expected to yield benefits in the next year or\ntwo. This leads to a more optimistic near-term prospectus than was\njustified even in the light of what was known on June 30. However,\nat the time it was impossible to foresee that the situation would become\neven more unstable when the news of deeper trade and balance-of-payments\ndeficits here -- so much in contrast with the growing surpluses and\nreserve accruals of Germany and Japan in particular -- whipped up a\nnew wave of speculation. Moreover, even if such a course of events\nhad been expected with a fairly high degree of probability the\nChairman was scarcely in a position to predict it and precipitate a\npanic.\ncc: Messrs. R. Solomon and Hersey\nFORD is LIBRARY GERALD\nMr. Cardon, Mr. Holland\nBOARD OF GOVERNORS\nPrepared before U.K.\nFEDERAL RESERVE OF THE SYSTEM decision to float\nOffice Correspondence\nDate June 22 1972\nTo Mr. Bryant\nSubject: Outline of Major Factors\nFrom\nLarry Promisel\nAffecting the Outlook for Sterling\nI. There has been much concern recently about the viability of the\npresent sterling exchange rate. This concern, reflected in state-\nments by the press and by public figures, and, in turn, in market\npressure on sterling, is based essentially on three factors:\nA. the outlook for wages and prices,\nB. the outlook for the balance of payments, and\nC. U.K. entry into the E.C., scheduled for January 1, 1973.\nII. The outlook for wages and prices has worsened.\nA. Wage increases -- in the wake of the miner's settlement\nin February have been accelerating, after slowing down\naround the turn of the year (see Table, lines 1 and 2).\nB. The outlook for wage settlements is now less favorable,\npartly because of the recent acceleration, but also\nbecause the new National Industrial Relations Court\nreceived major setbacks last week.\n1. It was hoped that the Court would put teeth into the\nGovernment's Industrial Relations Act, thereby lessening\nthe risk of labor disruption and tending to moderate\nthe increase in wage settlements.\nFORD & LIBRARY\nTo: Mr. Bryant\n-2-\n2. The Court recently ruled that a union is responsible for\nthe actions of its shop stewards. It imposed fines\ntotalling £55,000 on the Transport and General Workers'\nUnion for contempt in not stopping its stewards from\nblocking certain road haulage companies.\n3. This decision was thought by some to mark the beginning\nof a new -- and significantly better -- era of labor\nrelations.\n4. This decision was overruled by a Court of Appeals on\nJune 13.\n5. Another recent decision by the Industrial Relations\nCourt, to imprison three London dock workers for\nignoring an injunction to cease picketing, was over-\nruled by the Court of Appeals on June 16.\nC. Recently, price rises have been accelerating (see Table,\nFORD i LIBRARY GERALD\nlines 3 and 4).\nD. The outlook for prices has worsened,\n1. because of the outlook for wages (see above), and\n2. the money supply has been growing at rates thought\nby many to be excessive (see Table, line 5).\nE. A major uncertainty in the whole wage and price picture is\nthe likelihood of formal price and income controls. So\nfar, Heath has categorically denied that such an action is\nTo: Mr. Bryant\n-3-\npossible, and has pinned his hopes instead on an extension --\nin modified form -- of the voluntary restraint policy of the\nConfederation of British Industries.\nIII. The balance of payments surplus, which fell in the first quarter\n(see Table, lines 6-9), is expected to be increasingly eroded\nover the next year or two.\nA. The balance of payments picture reflects the sharp deteriora-\ntion already observed in the visible trade balance (see\nTable, lines 10-12).\n1. The competitiveness of British goods has declined (see\nTable, lines 13-15), and will decline further if the\nunfavorable outlook for prices proves to be correct.\n2. Economic activity in the U.K. is expected to pick up\nmarkedly. Given the large cyclical response of import\ndemand previously experienced in the U.K., this upturn\nin activity is likely to aggravate the U.K. trade posi-\ntion significantly.\nB. It should be emphasized that the U.K. current account is\nstill roughly in balance, with the surplus on invisibles\noffsetting the visibles deficit, and that the U.K. reserve\nposition is strong. A serious basic balance of payments\ndeficit is not really expected, before 1973, at the earliest.\nFORD & LIBRARY GERALD\nTo: Mr. Bryant\n-4-\nIV. U.K. entry into the Common Market may influence the timing of\na devaluation of sterling.\nA. If a devaluation of sterling within a year or two appears\ninevitable, then it could be argued that it would be\neasier -- and, therefore, better -- to devalue before\nentry, rather than after.\nB. Note: Entry into the Common Market is also expected to\nhave an adverse impact on the U.K. balance of payments,\nat least initially, as the cost to Britain in agriculture\nis expected to outweigh any gains in the industrial\nsector in the short run.\n1\nFORD i LIBRARY GERALD\nUNITED KINGDOM: SELECTED STATISTICS\n1971\n1972\nQ1\nQII\nQIII\nQIV\nQI\nJan.\nFeb.\nMar.\nApr.\nMay\nPercentage change over\nprevious period at\nannual rate.\n1. Hourly wage rates\n+16.1\n+8.2\n+10.2\n+13.5\n+13.9\n+11.9\n+1.8\n+5.9\n+6.7\nn.a.\n2. Average hourly earnings\n(SA)\n+ 8.2\n+9.8\n+11.6\n+ 7.3\n+ 9.1*\n+10.7\n*\n+20.7*\n+28.5\nn.a.\n3. Retail prices\n+10.9\n+14.2\n+ 5.6\n+ 5.2\n+ 6.1\n+12.7\n+5.4\n+ 4.5\n+10.7\n+5.9\n4. Wholesale prices\n(manufactured products,\nhome market sales)\n+ 8.8\n+ 8.6\n+ 5.8\n+ 2.9\n+ 3.8\n+ 4.7\n+3.8\n+ 1.9\n+ 6.6\n+7.6\n5. Money Supply M3 (SA)\n+11.2\n+ 6.7\n+10.0\n+19.3\n+21.9\n+21.9\n+3.0\n+30.4\n+25.6\nn.a.\n*As industrial activity was severly disrupted by restricted electricity supplies, no\nenquiry was held in February. The changes are therefore computed with January and\nMarch data only.\nLEGARA GERALD R. FORD\nUNITED KINGDOM: SELECTED STATISTICS (cont.)\n1971\n1972\nYear\nQ1\nQII\nQIII\nQIV\nQI\nJan.\nFeb.\nMar.\nApr.\nMay\nBalance of Payments\n(£ million)\n6.\nCurrent balance\n+979\n+51\n+338\n+331\n+259\n-50\nFORD i LIBRARY\n7.\nInvestment and other\ncapital flows\n+1858\n+626\n+306\n+474\n+452\n+54\nN.A.\n8.\nBalancing item\n+391\n+296\n-10\n-137\n+242\n+53\n9.\nTotal currency flow\n+3228\n+973\n+634\n+668\n+953\n+57\n10.\nExports (f.o.b., SA)\n8880\n1995\n2286\n2322\n2280\n2214\n742\n751\n721\n750\n751\n11.\nImports (f.o.b., SA)\n8580\n2061\n2172\n2145\n2205\n2325\n741\n784\n804\n800\n794\n12.\nVisible balance (SA)\n+300\n-66\n+114\n+177\n+75\n-111p\n+1\n-33\n-83\n-50\n-43\nUnit Values (1961 = 100)\n13.\nExports\n148\n143\n146\n149\n152\n155\n154\n154\n156\n156\n14.\nImports\n136\n133\n137\n138\n138\n139\n139\n138\n139\n139\n15.\nTerms of trade\n108\n108\n107\n108\n111\n112\n111\n112\n113\n113\nBOARD OF GOVERNORS\nOF THE\nFEDERAL RESERVE SYSTEM\nK\nOffice Correspondence\nDate June 23, 1972\nTo\nMr. Ralph Bryant\nSubject: The EEC and Sterling\nFrom\nCharles Siegman\n1. General features of intervention, interim financing procedures\nand settlements arrangements under system of narrower EEC exchange\nrate margins.\nA. Intervention procedures\na. each central bank intervenes on its own exchange\nmarket. A special telephone system links participating\ncentral banks, providing them the means to consult each\nother on a regular basis and whenever necessary\nb. intervention in Community currencies is required when\nthe 2.25 per cent fluctuation limit between the strongest \"Snake\"\nand weakest EEC currency is reached\nc. intervention in dollars is required when a Community\nparity or central rate reaches + 2.25 per cent against \"turnel\"\nthe dollar\nd. intervention within these bands requires Community\nagreement\nB. Interim financing\na. the positions built-up in the process of maintaining\nthe narrow intra-EEC bands will be covered by a swap system\nwhich would provide exchange guarantees and a uniform\nFORD & 03RALD LIBRARY\nMr. Ralph Bryant\n-2-\ninterest rate -- equal to the average of participating\ncentral banks discount rates -- on the balances.\nb. there are no limits to the interim financing ar-\nrangements and the financing is unconditional\nC. Monthly bilateral settlement arrangements\na. a debtor country could attempt to repurchase strongest\ncurrency for repayment of swap if market permitted during\nmonth\nb. settlement of net creditor-debtor positions among\ncentral banks as a result of their intervention in EEC\ncurrencies will take place on the final business day\nof the month following date of intervention\nc. a debtor central bank may request a three month\nextension from its settlement date\nd. the debtor country may first use for settlement\nany balance of the creditor's currency it might be\nholding.\ne. for the remainder, the reserves used for settlement\nshould be in proportion to the composition of the debtor\ncountry's reserve position at the end of the month preceding\nthe settlement date. For this purpose, reserves are\nclassified into two categories: gold and holdings having a\ngold link and foreign exchange.\nFORD & LIBRARY 938470\nMr. Ralph Bryant\n-3-\nf. settlement in other forms requires the mutual consent\nof the debtor and creditor countries.\n2. EEC contingency plans regarding pressure on the operation of\nnarrower intra-EEC bands\nThere do not appear to have been any contingency plans\nby the EEC Commission or EEC Council of Ministers in anticipation\nof possible difficulties in managing the narrower intra-EEC margins.\nWhen the narrowing of intra-EEC margins was instituted April 24th,\nit was considered to be somewhat experimental, with a number of\ntechnical and operational details to be ironed-out as the central\nbanks would acquire experience. (As events during the past 10\ndays have shown, in fact, the mechanisms with which the narrower\nEEC bands were attempted to be maintained faced a variety of\ntechnical difficulties.) No serious problems -- such as having\none EEC currency showing persistent weakness while other EEC\ncurrencies showing persistent strength - were envisaged, since at\n\"Snake\"\nthe start the EEC currencies were safely inside the 2.25 per cent\nband and the international financial markets were experiencing\nrelative calmness. IIII If there was a European currency which was\nconsidered to be a potential candidate for showing divergent\nexchange rate developments and thereby placing pressure on the\nnarrower EEC bands, it was thought to be the lira. An indication\nthat EEC officials did not consider sterling to be a possible\nGERALD FORD LIBRARY\nMr. Ralph Bryant\n-4-\nsource of tension for the operation of narrower intra-EEC\nmargins arrangements may be drawn from the fact that the United\nKingdom was invited to participate by the EEC prior to official\nentry into the EEC. There was no need to do so if difficulties were\nanticipated. Moreover, the United Kingdom, not yet being an EEC\nmember, would not be entitled to draw on the $1 billion\nEEC automatic short-term swap network established in 1970 and on the\n$2 billion medium-term credit facility which was approved in 1971\n*\nand to become effective this year. Thus, no thought that a\nserious test of the effectiveness of the operation of the EEC\nnarrow margins was expected so soon, nor of the magnitude of inter-\nvention as has occurred, and not involving sterling at this time.\nThe EEC therefore has been caught unprepared for this immediate\ncrisis.\n3. EEC capital controls.\nThe EEC Council of Ministers' resolution to move towards\neconomic and monetary union which was approved on March 21, 1972 --\nof which the narrowing of intra-EEC margins was only one element --\nincluded a paragraph dealing with Community action to counter\ndestabilizing capital flows.\nFORD LIBRARY & GERALD\n\"5) So as to discourage excessive flows of capital and to\nneutralize their negative effects on internal liquidity,\nthe Council adopts the directive proposed by the Com-\nmission on June 23, 1971, concerning the regulation of\ninternational financial flows and the neutralization of\ntheir undesirable effects on internal liquidities.\"\n*Although these credit facilities have not yet been used by EEC\nmembers, they were considered to provide support to the operation\nof the narrow intra-EEC margins.\nMr. Ralph Bryant\n-5-\nAccording to the June 1971 proposals, in order to\ncounter capital inflows or neutralize their impacts Community\ncentral banks were to be given such weapons as the suspension of\ninterest payments on foreign deposits, curbs on external borrowing\nby banks or business firms and controls on non-resident purchases of\nsecurities. Since March no significant progress appears to have\nbeen made in devising such uniform capital controls. Nor has\nthere been agreement on individual country application of specific\ncapital control measures. For the time being capital control\nmeasures are still being instituted on a unilateral basis. A1-\nthough recent reports suggest that the Germans may be mellowing\nsomewhat with regard to their previous strong opposition to\nexchange and capital controls, the fundamental differences\nbetween France and Germany regarding the desirability and form\nof such controls remains. It does not appear likely that the EEC\nis ready at this juncture to adopt uniform capital control measures.\nThere may be a greater likelihood for EEC countries again to adopt\na joint position to regulate short-term capital movements, with each\ncountry selecting its own instruments.\n4.\nImmediate future of narrower intra-EEC margins.\nAlthough the EEC has incentives -- mainly political and\npsychological -- to make an effort to continue operating the narrower\nintra-EEC margin arrangements once the United Kingdom has departed\nfrom the grouping, there is likely to be mounting pressure on the\nFORD\nGERALD.\nLIBRARY\nMr. Ralph Bryant\n-6-\noperation of the narrower intra-EEC margins in the weeks ahead.\nIf the divergence between the lira and other EEC exchange rates\nwidens, a new pressure point may be building up. It is doubtful\nwhether Germany, France, Belgium and the Netherlands would be will-\ning to extend credit to Italy so soon after the experience of these\npast 10 days. If such pressure points do arise, it is safe to\nconclude that the experiment to narrow intra-EEC margins will be\nsuspended.\nFORD & LIBRARY GERALD\n5. Joint EEC float?\nIt would appear highly unlikely for the EEC countries to\nreach agreement at this time to adopt a joint Community float against\nthe dollar. The Netherlands would object since she considers the\nDecember 1971 revaluation of the guilder to have been excessive, and\nwould not countenance a further appreciation. Italy also would oppose\na joint float since she would not want to see the lira appreciate,\ngiven the limited confidence in the strength of the lira owing to\npolitical instability and labor difficulties. France would likely\nstrenuously oppose a joint float on the grounds that such an action\nwould provide the United States total freedom to pursue its external\nand internal policies at the \"expense\" of the rest of the world. In\naddition, France would not like to see any appreciation of the franc.\nmight\nOnly Germany would be likely to look favorably on a joint float, but\nit is doubtful whether she will be able to convince her partners.\ncc: R. Solomon, R. Sammons, R. Gemmill, A. Hersey, H. Junz, and\nD. Roxon\nBOARD OF GOVERNORS\nOF THE\nFEDERAL RESERVE SYSTEM\nOffice Correspondence\nDate June 23, 1972\nTo Mr. R. Bryant\nSubject: Likely choice of option for\nexchange rate regime among Common\nFrom\nHelen B. Junz LB.F\nMarket countries.\nIf and when foreign exchange markets reopen on Tuesday next\nweek, it is most likely that the Common Market currencies, with excep-\ntion of sterling, will be trading according to the rates and rules\nestablished at the Smithsonian agreement last December. Strains on\nthe rates are likely to be warded off by exchange controls of some\nsort.\nA common float of the six against the dollar does not seem\na really viable option at the moment. The French, the Italians and\nprobably the Belgians would not wish to see their rates appreciate\nagainst the dollar and, philosophically, would prefer exchange con-\ntrols of some sort in any event. The Germans and the Dutch, who\nmight wish to avoid going the road of controls, have little leverage\nat the moment. Neither would feel that they can afford to appreciate\nagainst the other Common Market currencies, so that the option of\nfloating by themselves, as they did last year, is really not open\nto them now. Without this leverage, the chance of getting the other\nCommon Market countries to agree to a common float is small. In\naddition, it is not even clear that the Germans, at this point, would\nnot consider some control regime the lesser of two evils. They might\nfind further appreciation of the snake against the dollar tolerable,\nif it were small, but an appreciation against the yen would probably\nbe thought to be intolerable.\nFORD & LIBRARY GERALD\nTo: Mr. Bryant\n- -la-\nFurthermore, an upward move of the E.E.C. snakewould put\ngreat pressure on the Italians. The lira is at the lower limit of\nthe E.E.C. band and rather than float up with the other E.E.C.\ncurrencies, the Italian authorities might wish to take the oppor-\ntunity to move the lira rate down. The dilemma faced by the E.E.C.\ngovernments, thus, is that of keeping the currencies of the Six\nwithin the E.E.C. band without creating further pressure on the\nlira. Still, it seems that the status quo, buttressed by exchange\ncontrols, is the most likely outcome at the moment.\nFORD & LIBRARY CERALD\nTo: Mr. Bryant\n-2-\nTo some extent holding to the Smithsonian agreement by\nall currencies except sterling may well be the best that can be\nexpected. The short-term gain of a lessening of pressure on the\ndollar associated with a common float of the E.E.C. currencies\nmight be useful, but a coming apart of the Smithsonian agreement\nunder market pressure, and before any real negotiation or reform\nhas started, might be counterproductive in the long run. This\nwould be so, even if a further depreciation of the dollar rate\nwere thought to be desirable.\nThe rate at which sterling is likely to settle in a free\nfloat depends upon the attitude the British government takes towards\nthe exchange crisis. If it is taken that the current wave of\nspeculation reflects only the conviction that the current sterling\nrate vis-à-vis the Common Market currencies is not realistic and\nwould have to be revised at some time around the forthcoming E.E.C.\nsummit scheduled for October next, market reaction may well drive\nsterling below $2.50. However, if it is taken that current concerns\nwere triggered also by the view that relative rates of inflation\ntend to make the current sterling rate unrealistic and measures are\ntaken to moderate inflationary trends, sterling may hold at around\n$2.50. It would seem that the latter course of action is the more\nappropriate, particularly because the fact that a $2.40 rate would\nFORD is LIBRARY GERALD\nTo: Mr. Bryant\n-3-\nput considerable pressure on the cost of living provides leverage\nfor the adoption of, and compliance with, incomes policy measures.\nHowever, a managed float as a holding operation may be successful\nin the short run and possibly is the more likely course of action\nto be expected at this time.\nwill\nGERALD R. FORD\nBOARD OF GOVERNORS\nOF THE\nFEDERAL RESERVE SYSTEM\n+\nOffice Correspondence\nDate June 23, 1972\nTo\nMr. Ralph Bryant\nSubject: U.K. Balance of Payments\nFrom\nLarry Promisel\nA summary of the U.K. balance of payments is presented in\nTable 1. Since the British no longer provide a breakdown of capital\nflows into long-term and short-term flows, the best measure of the\nbalance of payments is the \"Total Currency Flow.\" On the basis of\nthis, the U.K. balance of payments surplus deteriorated sharply\nfrom a quarterly average of £807 million in 1971 to only £57 million\nin the first quarter of this year.\nThis deterioration can be traced to several elements.\nA large part of it reflected the absence of speculative inflows,\nwhich had been very sizeable in 1971 -- particularly in the fourth\nquarter.\nU.K. private investment overseas was the largest capital\noutflowin the first quarter, amounting to £360 million, compared to\na quarterly average outflow last year of £190 million. About half\nof the first quarter outflow was direct investment. Portfolio\ninvestment -- almost entirely by financial institutions investing\nin the United States and the E.E.C. -- was about £120 million,\ncompared to a quarterly average of about £10 million in 1971. How-\never, this portfolio investment was financed by foreign-currency\nborrowing by U.K. banks.\nFORD & LIBRARY GERALD\nTo: Mr. Bryant\n-2-\nThe most significant element in the deterioration of the\nbalance of payments was the current account, which showed a surplus\nof only £30 million (seasonally adjusted) after showing quarterly\nsurpluses last year averaging almost £250 million. This, in turn,\nreflects a worsening of the balance on visible trade, although\nthere was also a slight reduction in the surplus on invisibles.\nThe recent trend of U.K. trade is presented in Table 2.\nExports this year are actually lower than they were the last three\nquarters of last year, both in value terms and, more markedly, in\nvolume terms, since there has been a continuing improvement in the\nterms of trade. This poor export performance has frequently been\nexplained by noting that (1) world trade has been growing\nslowly in recent quarters, and (2) the U.S. dock strike and the\nU.K. coal miners' strike caused disruption to exports. However,\neven in real terms,\n(1) world trade has not actually declined,/ as have U.K. exports,\nand (2) although the effects of the power shortage during the\nminers' strike is clearly seen in the March export figure, the\nfact that the recovery of exports since then has been disappoint-\ning (the April-May average was less than the average of the last\nthree quarters of 1971), suggests that something else -- probably\na decline in competitiveness -- is the explanation. The expecta-\ntion that prices in the United Kingdom are going to rise faster\nFORD & LIBRARY GERALD\nTable 1. U.K. Balance of Payments\n(£ millions)\n1971\n1972\n1969\n1970\n1971\n1st qtr\n2nd qtr\n3rd qtr\n4th qtr\n1st qtr\nSeasonally adjusted\nA. Current account\nVisible trade\n- 141\n+\n7\n+ 297\n-\n66\n+ 113\n+ 176\n+ 74\n- 118\nInvisibles\n+ 584\n+ 604\n+\n682\n+ 166\n+ 170\n+ 178\n+ 168\n+ 148\nCURRENT BALANCE\n+ 443\n+ 611\n+ 979\n+\n100\n+ 283\n+ 354\n+ 242\n+ 30\nNot seasonally adjusted\nB. Currency flow and official\nfinancing\nCurrent balance\n+ 443\n+ 611\n+ 979\n+\n51\n+ 338\n+ 331\n+ 259\n- 50\nInvestment and other capital flows\n- 97\n+ 578\n+ 1,858\n+\n626\n+ 306\n+ 474\n+ 452\n+ 54\nBalancing item\n+ 397\n+\n98\n+ 391\n+ 296\n- 10\n- 137\n+ 242\n+ 53\nTOTAL CURRENCY FLOW\n+ 743\n+ 1,287\n+ 3,228\n+ 973\n+ 634\n+ 668\n+ 953\n+ 57\nAllocation of special drawing\nrights (+)\n-\n+ 171\n+ 125\n+ 125\n-\n-\n-\n+ 124\nGold subscription to IMF (-)\n-\never 38\n-\n-\n-\n-\n-\n-\nTotal of above\n+ 743\n+ 1,420\n+ 3,353\n+ 1,098\n+ 634\n+ 668\n+ 953\n+ 181\nFinanced as follows:\nNet transactions with overseas\nmonetary authorities\n- 699\n- 1,295\n- 1,817\n- 894\n- 508\n- 92\n- 323\n+ 10\nOfficial reserves (drawings on,\n+; additions to, (1)\n- 44\n- 125\n- 1,536\n- 204\n- 126\n- 576\n- 630\n- 191\n(1) From 23 August 1971, valued in sterling at the rates at which transactions occurred (see Technical Note in\nDecember 1971 issue of Economic Trends).\nSource: H. M. Treasury\nFORD is LIBRARY 9ERALD\nTable 2. UNITED KINGDOM: MERCHANDISE TRADE\n(monthly averages)\n1971\n1972\nQ1\nQ2\nQ3\nQ4\nQ1\nJan.\nFeb.\nMar.\nApr.\nMay\nValue (£ millions; balance\nof payments basis; SA)\nExports\n665\n762\n774\n760\n740\n741\n756\n721\n750\n751\nImports\n687\n724\n715\n735\n779\n743\n790\n804\n800\n794\nBalance\n-22\n+38\n+59\n+25\n-39\n-2\n-34\n-83\n-50\n-43\nVolume (1961 = 100; SA)\nExports\n150\n169\n167\n162\n158\n159\n162\n152\n160\nn.a.\nImports\n162\n164\n160\n164\n172\n163\n175\n177\n179\nn.a.\nUnit Value (1961 = 100;\nNSA)\nExports\n143\n146\n149\n152\n155\n157\n154\n156\n156\nn.a.\nImports\n133\n135\n137\n137\n139\n139\n138\n139\n139\nn.a.\nTerms of Trade\n108\n108\n109\n111\n112\n112\n112\n112\n112\nn.a.\nSource: Central Statistical Office\nFORD & LIBRARY GERALD\nBOARD OF GOVERNORS\nOF THE\nFEDERAL RESERVE SYSTEM\nOffice Correspondence\nDate June 23, 1972\nTo Mr. Bryant\nSubject: Italian Balance of Payments\nFrom\nR. H. Mills, Jr.\nItaly's balance of payments has been strong for nearly\ntwo years, because of a large surplus on current account. In 1972\nto date the overall balance has weakened because of larger capital\noutflows that were probably generated by political uncertainties.\nThe outlook is for continued large surpluses on current account\ntogether with the possibility that intensified labor troubles and\npolitical weaknesses might further raise the level of capital out-\nflows.\nIn 1971 the recorded overall external surplus was $740\nmillion (after a downward adjustment of $40 million to eliminate\nthe effect of exchange rate changes on the dollar value of official\nreserves). But this far understates the \"true\" surplus because it\nreflected $780 million of advance debt repayments by Italian state\nenterprises that were made at the suggestion of the authorities\n(although they could also have been justified by interest rate con-\nsiderations as well). Adjustment for advance debt repayments gives\nan overall surplus last year of about $1.5 billion.\nThe current account was in surplus by no less than $1.9\nbillion on a transactions basis (more than double the 1970 figure).\nBalances on trade, services, and transfers all increased last year.\nFORD LIBRARY s GERALD\nTo: Mr. Bryant\n-3-\nthan prices elsewhere implies that a turnaround in U.K. export\nperformance is unlikely (in the absence of a devaluation). We\nthink this is true in spite of the beneficial impact on U.K.\nexports expected from the forecast upturn in economic activity\nin Britain's trading partners.\nImports in the United Kingdom have been rising strongly.\nAs in the case of exports, some of this can be attributed to the\nminers' strike, which resulted in sharply higher imports (notably\nof coal) in February and, perhaps, in March. But, again, the\nmaintenance of high levels of imports in April and May suggest\nthat this trend is quite fundamental, related largely to the up-\nturn in U.K. economic activity.\nIn sum, the total currency flow in the first quarter\nwould have been somewhat higher if adjustment to the trade balance\nwere made for strike effects, although cyclical adjustment to the\ntrade balance would probably more than offset the strike effects.\n(That is, adjusted both for cyclical conditions in the United\nKingdom and abroad and for the strikes, the trade deficit might\nhave been larger.) On the other hand, the balance of payments\nsurpluses in 1971 were inflated by speculative inflows. Neverthe-\nless, although the raw data may overstate the case, we conclude\nthat there has been a significant, basic deterioration in the U.K.\nbalance of payments position.\nFORD & LIBRARY GERALD\nTo: Mr. Bryant\n-2-\nExports rose 13 per cent and imports 7 per cent in value, but in volume\nterms imports did not rise at all, a development that underscored the\nfailure of aggregate demand in Italy to rise more than minimally (real\nGNP was up 1-1/2 per cent). Capital flows other than the afore-\nmentioned debt prepayments, and errors and omissions, produced a\nnet outflow of $335 million on a transactions basis. (Trade credits are\nincluded here, but excluded from the figures on an exchange record basis.)\nThe first four months of this year show a $190 million\noverall deficit; there would have been a surplus of $130 million\nhad there not been further debt prepayments in January-February. But\nthat would have been less than the surplus of $370 million in the\nfirst four months of last year; and there was a deficit in March-\nApril this year of $20 million compared with a $150 million surplus\na year ago.\nNet capital movements on an exchange record basis produced\na $275 million net outflow in the first quarter that was additional\nto the debt prepayments, compared with a quarterly average net inflow\n(on an exchange record basis) last year of nearly $200 million. Close\nto two-thirds of this swing is accounted for by an increase in capital\nexports financed by exports of Italian banknotes. The trade balance,\nseasonally adjusted, changed little in either the fourth quarter of\n1971 or the first quarter of 1972.\nFORD is LIBRARY GERALD\nTo: Mr. Bryant\n-3-\nThe current account should continue to be very strong, per-\nhaps even get stronger. At present it seems doubtful that the level\nof economic activity in Italy in the near future will be rising as\nfast as in Italy's main trading partners taken as a whole. In\nApril the OECD Secretariat projected a small rise in Italy's seasonally-\nadjusted current account surplus in the first half of 1972, then no\nchange at all in the next two half-years.\nAs you know, the Italian economy is in a state of malaise,\nas was well illustrated by Gov. Carli's gloomy remarks at the Bank\nof Italy annual meeting May 31. Since 1969 unit labor costs have\nadvanced enormously, profits have shrunk, the business community is\npessimistic, and private investment is in a slump. A new round of\ncrucial wage negotiations is about to start. If labor is as demand-\ning as it was in 1969, the situation could get worse, particularly\nsince government leadership is quite weak. While the future is very\nmurky, the possibility of a sizeable step-up in the exodus of Italian\ncapital seems a real one.\nQERALD FORD LIBRARY\nBOARD OF GOVERNORS\nOF THE\nFEDERAL RESERVE SYSTEM\nOffice Correspondence\nDate June 23, 1972\nTo\nMr. Ralph C. Bryant\nSubject: May Trade Figures.\nFrom Daniel Roxon\nThe official trade data for May was about the same as given\nto you earlier. The May deficit is estimated to be $7 billion at\nan annual rate, balance of payments basis. Though the May deficit\nis still high, about equal to the rate in the first quarter, it is\nquite a bit below the $8-3/4 billion deficit of April. The drop in\nthe deficit in May resulted from an increase in exports, principally\nin foodstuffs and aircraft; imports were virtually unchanged from\nthe high April level.\nTrade Data, Balance of Payments Basis\n(millions of dollars, seasonally adjusted annual rates)\nExports\nImports\nBalance\n1971 - Annual\n42.8\n45.5\n-2.7\nQ-1\n44.1\n42.9\n+1.0\nQ-2\n42.8\n46.8\n-4.0\nQ-3\n45.9\n47.8\n-1.9\nQ-4\n38.3\n44.2\n-6.0\n1972 - January\n50.0\n55.2\n-5.2\nFebruary\n45.5\n52.8\n-7.3\nMarch\n46.2\n53.8\n-7.6\n1Q\n47.2\n53.9\n-6.7\nApril\n44.5\n53.3\n-8.7\nMay\n46.5\n53.5\n-7.0\nfor\nFORD & LIBRARY GERALD\nBOARD OF GOVERNORS\nOF THE\nFEDERAL RESERVE SYSTEM\nOffice Correspondence\nDate June 28, 1972\nTo\nMr. Gemmill\nSubject: May Balance of Payments\nFrom\nM. Garber\nData\nSTRICTLY CONFIDENTIAL\nPreliminary balance of payments data for May indicate\nthat there was a surplus of $542 million on the official reserve\ntransactions basis and a surplus of $81 million on the liquidity\nbasis. For the three weeks ended June 21 there were deficits\nof $126 million on the official reserve transactions basis and\n$381 million on the liquidity basis.\nBank-reported claims on foreigners declined $234 million\nduring May; short-term declined $336 million while long-term\nincreased $102 million.\nFORD is LIBRARY 0ERALD\nChairmen Burns\nBOARD OF GOVERNORS\nOF THE\nFEDERAL RESERVE SYSTEM\nOffice Correspondence\nDate June 26, 1972.\nTo\nMr. Ralph C. Bryant\nSubject: U.S. Merchandise Trade --\nFrom\nSujin Shin\nMay 1972.\nIn May, the U.S. trade deficit showed a moderate decline\nfrom the very high deficit of April. The deficit in May was $7.3\nbillion at a seasonally adjusted annual rate (balance-of-payments\nbasis), compared with $8.7 billion in April. The drop in the\ndeficit in May resulted from a substantial increase in exports\nwhile imports rose only slightly. For April-May combined the\ntrade deficit was $8.0 billion at an annual rate, considerably\nhigher than the first quarter deficit of $6.7 billion.\nImports in May were $53.7 billion at an annual rate\n(balance-of-payments basis), about 0.8 percent above the April\nlevel. Imports, however, have varied within a narrow range in\nthe last three months. The rise in imports from April to May was\nlargely in imports of foods, and industrial supplies and materials\n(especially steel). These advances were somewhat offset by the\ndeclines in imports of consumer goods, and automotive vehicles and\nparts. Arrivals of cars from Canada fell sharply from the record\nApril level; the value of imports of cars from other sources, however,\nadvanced in May.\nExports in May were $46.4 billion at an annual rate\n(balance-of-payments basis), a rise of 4.3 percent over April.\nThe moderate increase in May reflected gains in agricultural\nproducts (foodstuffs, tobacco) and large deliveries of civilian\naircraft. Both of these categories were at an exceptionally high\nlevel in May. Exports of machinery showed little change from April\nto May.\nU.S. Merchandise Trade, Balance of Payments Basis\n(billions of dollars, seasonally adjusted annual rates)\n1971\n1971\n1972\nYear\n10\n2Q\n3Q\n4Q\n1Q\nApr.\nMay\nExports\n42.8\n44.1\n42.8\n45.9\n38.3\n47.2\n44.5\n46.4\n45.5r\nr\nImports\n42.91\n46.9\n47.8\n44.2\n53.9r\n53.3r\n53.7\nBalance\n-2.7ʳ\n+1.2ʳ\n-4.0\n-1.9ʳ\n-6.0°\n-6.7°\n-8.7\n-7.3\nNote: Details may not add to totals because of rounding.\nGERALD FORD LIBRARY\nTable 1\nU.S. Merchandise Trade\n(billions of dollars, seasonally adjusted annual rates)\nCensus Basis\nBalance of Payments Basis*\nExports\nImports\nBalance\nExports\nImports\nBalance\n1963\n22.5\n17.2\n5.3\n22.3\n17.0\n5.2\n1964\n25.8\n18.7\n7.1\n25.5\n18.6\n6.8\n1965\n26.7\n21.5\n5.2\n26.4\n21.5\n4.9\n1966\n29.5\n25.6\n3.9\n29.3ʳ\n25.5\n3.8r\n1967\n31.0\n26.9\n4.1\n30.6r\n26.8\n3.8r\n1968\n34.1\n33.2\n0.8\n33.6\n33.0\n0.6\n1969\n37.3\n36.0\n1.3\n36.4ʳ\n35.8\n0.6ʳ\n1970\n42.7\n40.0\n2.7\n42.0\n39.8ʳ\n2.2r\n1971\n43.6\n45.6\n-2.0\n42.8\n45.5°\n-2.7ʳ\n1968\nI\n32.1\n31.5\n0.6\n31.8\n31.3\n0.5\nII\n33.9\n32.6\n1.3\n33.5\n32.5\n1.0\nIII\n36.1\n34.2\n1.9\n35.5\n34.3\n1.2\nIV\n34.3\n34.1\n0.2\n33.5\n33.8\n-0.3\n1969\nI\n30.5\n30.6\n-0.2\n30.0\n30.4\n-0.3\nII\n39.1\n38.4\n0.7\n38.0\n38.3\n-0.3\nIII\n39.6\n37.3\n2.3\n38.4\n37.1\n1.3\nIV\n40.1\n37.8\n2.3\n39.6\n37.6\n2.0\n1970\nI\n41.3\n38.9\n2.4\n40.9r\n38.9\n2.0ʳ\nII\n43.2\n39.5\n3.7\n42.3\n39.3\n2.9ʳ\nIII\n43.4\n40.1\n3.3\n42.8\n39.9ʳ\n2.9r\nIV\n43.0\n41.3\n1.7\n41.8\n41.1°\n0.8ʳ\n1971\nI\n45.0\n43.2\n1.8\n44.1\n42.9r\n1.2ʳ\nII\n43.9\n47.0\n-3.2\n42.8\n46.9r\n-4.0r\nIII\n46.7\n47.9\n-1.2\n45.9\n47.8r\n-1.9ʳ\nIV\n38.9\n44.2\n-5.3\n38.3\n44.2r\n-6.0r\n1972\nI\n47.7\n53.7\n-6.0\n47.2\n53.9r\n-6.7r\n1971 May\n45.4\n47.8\n-2.4\n44.1r\n47.6ʳ\n-3.5ʳ\nJune\n43.9\n48.2\n-4.3\n43.2\n48.1ʳ\n-5.0ʳ\nJuly\n41.9\n45.5\n-3.6\n41.1\n45.4ʳ\n-4.3r\nAugust\n44.1\n47.2\n-3.1\n43.4r\n47.1r\n-3.7ʳ\nSeptember\n54.1\n50.9\n3.2\n53.3r\n50.9\n2.4\nOctober\n32.5\n42.4\n-9.9\n31.7ʳ\n42.3r\n-10.6r\nNovember\n37.9\n40.6\n-2.7\n37.3ʳ\n40.5r\n-3.2\nDecember\n46.3\n49.6\n-3.3\n45.7r\n49.8r\n-4.1r\n1972\nJanuary\n50.7\n54.5\n-3.8\n50.0r\n55.2r\n-5.2r\nFebruary\n45.7\n52.8\n-7.2\n45.5\n52.8ʳ\n-7.3ʳ\nMarch\n46.7\n53.7\n-7.0\n46.2r\n53.8r\n-7.6r\nApril\n45.1\n53.5\n-8.4\n44.5\n53.3ʳ\n-8.7r\nMay\n47.0\n53.6\n-6.6\n46.4\n53.7\n-7.3\n*The monthly balance of payments figures are only rough estimates and\nare subject to considerable revision.\nr = Revised.\nNote: Details may not add to totals because of rounding.\nFORD is LIBRARY GERALD\nTable 2\nU.S. Exports of Domestic and Foreign Merchandise\nby End-Use Commodity Categories\nIncluding Department of Defense Shipments\n(Seasonally adjusted; annual rates)\nbillions of dollars\n1971\n1972\n1st\n2nd\n1st\nHalf\nHalf\nQtr.\nApr.\nMay\nFoods, feeds, and beverages\n6.1\n6.1ʳ\n7.0ʳ\n6.1\n7.1\nIndustrial supplies and materials\n13.3ʳ\n12.2\n13.7ʳ\n12,2\n12.8\nCapital goods excl. automotive\n15.2\n14.9r\n16.5ʳ\n15.7\n16.1\nCivilian aircraft and parts\n(3.4)\n(3.1)\n(3.3)\n(2.7)\n(4.0)\nr\nMachinery\n(11.6)\n(11.6)\n(12.9)\n(12.5)\n(12.4)\nAutomotive vehicles and, parts\n4.5\n4.4\n4.8r\n4.9\n5.1\nTo Canada\n(3.2)\n(3.2)r\n(3.6)\n(3.9)\n(4.0)\nTo other\n(1.2)\n(1.2)\n(1.2)\n(1.1)\n(1.1)\nConsumer goods\n2.7\n2.9\n3.3ʳ\n3.2\n3.3\nAll other\n3.2\n2.9\n2.8ʳ\n3.3\n3.1\nTotal\n45.0\n43.4\n48.2\n45.7\n47.6\nAgricultural commodities\n8.0\n7.6\n9.1\n7.7\n8.7\nNonagricultural commodities\n36.9\n35.8\n39.2ʳ\n38.0\n38.9\nU.S. General Imports\nby End-Use Commodity Categories\n(Seasonally adjusted; annual rates)\nbillions of dollars\n1971\n1972\n1st\n2nd\n1st\nHalf\nHalf\nQtr.\nApr.\nMay\nFoods, feeds, and beverages\n6.5\n6.3\n7.3ʳ\n6.5\n6.9\nIndustrial supplies and materials\n16.6\n17.3\n18.9ʳ\n18.5\n19.2\nFuels and lubricants\n(3.3)\n(4.1)\n(4.3)\n(4.8)\n(4.5)\nIron and steel\n(2.9)\n(2.8)\n(2.7)\n(2.2)\n(2.9)\nCaptial goods excl. automotive\n4.1\n4.1\n5.3ʳ\n5.2\n5.2\nAugomotive vehicles and parts\n7.5ʳ\n8.4r\n8.9\n10.2\n9.5\nFrom Canada\n(4.4)r\n(4.7) r\n(5.0)\n(6.3)\n(4.9)\nFrom other\n(3.1)\n(3.7)\n(3.9)\n(4.4)\n(4.6)\nConsumer goods\n8.7\n8.4\n11.5\n11.5\n10.4\nNondurable goods\n(3.3)\n(3.3)\n(4.2) r\n(3.9)\n(3.6)\nDurable goods\n(4.8)\n(4.6)\n(6.5)\n(6.9)\n(6.0)\nUnmanufactured goods\n(0.6)\n(0.5)\n(0.7)ʳ\n(0.7)\n(0.7)\nAll other\n1.6\n1.5\n1.8\n1.8\n1.7\nTotal\n45.1\n46.0\n53.7\n53.5\n53.6\nNote:\n(1)\nDetails may not add to totals because the commodity sections were\nindependently adjusted for seasonal variations.\n(2)\nTotals will not correspond to the Census basis totals in Table 1\nbecause Department of Defense Military Grant-Aid shipments are\nincluded in exports of domestic and foreign merchandise in Table 2.\nmm-\n1080 j LIBRARY GERALD\nTable 3\nImports as Per Cent of GNP\n(billions of current dollars)\nAnnual\nGNP\nImports\n1/\nPercent\n1961\n520.1\n14.52\n2.79\n1962\n560.3\n16.22\n2.89\n1963\n590.5\n17.01\n2.88\n1964\n632.4\n18.65\n2.95\n1965\n684.9\n21.50\n3.14\n1966\n749.9\n25.46\n3.40\n1967\n793.9\n26.82\n3.38\n1968\n864.2\n32.96\n3.81\n1969\n929.1\n35.80 r\n3.85\nr\n1970\n974.1\n39.80 r\n4.09\n1971\n1,046.8\n45.46 r\n4.34 r\nHalf Years at Annual Rates, Seasonally Adjusted\n1968\n1H\n845.7\n31.90 r\n3.77\n2H\n882.7\n34.02\n3.85\n1969\n1H\n914.1\n34.31\n3.75\n2H\n944.1\n37.35\n3.96\n1970\n1H\n962.3\n39.12\n4.07\n2H\n986.0\n40.48 r\n4.1F\n1971\n1H\n1,030.4\n44.90r\n4.36r\n2H\n1,063.2\n46.02r\n4.33ʳ\nQuarterly at Annual Rates, Seasonally Adjusted\n1967\nI\n774.4\n26.64\n3.44\nII\n784.5\n25.86\n3.30\nIII\n800.9\n26.17\n3.27\nIV\n815.9\n28.62r\n3.51\n1968\nI\n834.0\n31.28\n3.75\nII\n857.4\n32.53 r\n3.79\nr\nIII\n875.2\n34.28r\n3.92\nIV\n890.2\n33.77ʳ\n3.79\n1969\nI\n906.4\n30.36\n3.35\nII\n921.8\n38.26\n4.15\nIII\n940.2\n37.11\n3.95\nIV\n948.0\n37.59\n3.97\n1970\nI\n956.0\n38.92r\n4.07\nII\n968.5\n39.32\n4.06\nIII\n983.5\n39.87r\n4.05r\nIV\n988.4\n41.08 r\n4.16r\n1971\nI\n1,020.8\n42.91r\n4.20ʳ\nII\n1,040.0\n46.89r\n4.51r\nIII\n1,053.4\n47.80ʳ\n4.54r\nIV\n1,072.9\n44.23r\n4.12r\n1972\n1\n53.93ʳ\n4.89\nr\n1,103.6\n1/ Balance of payments basis.\nFORD & LIBRARY GERALD\nr = Revised.\nP = Preliminary.\nU.S. MERCHANDISE TRADE\nBalance of Payments Basis\nQuarterly, Seasonally Adjusted, Annual Rates\nBillions of Dollars\n60\n50\nExports\n40\nImports\n30\n20\nFORD & LIBRARY GERALD\n10\n1967\n1969\n1971\n1973\nU.S. MERCHANDISE TRADE\nBalance of Payments Basis\n1-2-1 Moving Averages\nSeasonally Adjusted, Annual Rates\nBillions of dollars 60\n55\n50\nImports\n45\nExports\n40\nGERALE FORD LIBRARY\n35\nJ\nF\nM\nA\nM\nJ\nJ\nA\nS\nO\nis\nD\nJ\nF\nM\nA\nM\nJ\nJ\nA\nS\n0\nA\nD\n1971\n1972\nBOARD OF GOVERNORS\nOF THE\nFEDERAL RESERVE SYSTEM\nOffice Correspondence\nDate July 27, 1972\nTo\nMr. Ralph C. Bryant\nSubject:\nU.S. Merchandise Trade --\nFrom\nSujin Shin\nJune 1972.\nIn June, the U.S. trade balance was a deficit of $7.0 billion\nat a seasonally adjusted annual rate (balance-of-payments basis), slightly\nbelow the May deficit of $7.3 billion. The drop in the deficit in June\nresulted from a slight increase in exports while imports were about\nequal to the May level. For the second quarter of 1972, the trade\nbalance was a deficit of $7.7 billion (SAAR), compared with a deficit\nof $6.7 billion for the first quarter. The levels of both exports and\nimports in the second quarter declined from those of the first quarter\nbut the drop in exports exceeded that of imports.\nImports in June were $53.7 billion at an annual rate (balance-\nof-payments basis), equal to the May rate. In June virtually all\ncommodity groups increased, except automotive imports from Europe and\nJapan which showed a significant decline. However, sales of these cars\nin the United States rose in June; it appears that there was a downward\nadjustment in inventories following an inventory buildup in the earlier\nmonths of the year. Imports of other nonfood consumer goods, which\nhad declined in the previous two months, rose strongly in June. Imports\nof industrial supplies and materials (mainly metals other than iron and\nsteel) and capital goods (mostly machinery) also increased in June.\nThe ratio of imports to GNP in the second quarter declined.\nto 4.70 percent, compared with 4.86 percent in the first quarter.\nHowever, if first quarter imports were adjusted for the dock strike\nmakeup in that period, the import/GNP ratio would probably be about\nthe same in both quarters.\nExports in June were $46.7 billion at an annual rate (balance-\nof-payments basis), an increase of less than one percent from the May\nrate. Most of the increase in the level of exports was due to the\nsignificant increase in shipments of agricultural commodities. This\nadvance was partially offset by the decline in nonagricultural commodities.\nExports of machinery, however, showed almost no change from the previous\ntwo months.\nU.S. Merchandise Trade, Balance of Payments Basis\n( billions of dollars, seasonally adjusted annual rates)\n1971\n1972\nYear\n1H\n2H\n10\n2Q\nMay\nJune\nExports\n42.8\n43.5\n42.1\n47.2\n45.9\n46.4\n46.7\nImports\n45.5\n44.9\n46.0\n53.9\n53.6\n53.7\n53.7\nBalance\n-2.7\n-1.4\n-3.9\n-6.7\n-7.7\n-7.3\n-7.0\nGERALD FORD LIBRARY\nNote: Details may not add to totals because of rounding.\nTable 1\nU.S. Merchandise Trade\n(billions of dollars, seasonally adjusted annual rates)\nCensus Basis\nBalance of Payments Basis*\nExports\nImports\nBalance\nExports\nImports\nBalance\n1963\n22.5\n17.2\n5.3\n22.3\n17.0\n5.2\n1964\n25.8\n18.7\n7.1\n25.5\n18.6\n6.8\n1965\n26.7\n21.5\n5.2\n26.4\n21.5\n4.9\n1966\n29.5\n25.6\n3.9\n29.3\n25.5\n3.8\n1967\n31.0\n26.9\n4.1\n30.6\n26.8\n3.8\n1968\n34.1\n33.2\n0.8\n33.6\n33.0\n0.6\n1969\n37.3\n36.0\n1.3\n36.4\n35.8\n0.6\n1970\n42.7\n40.0\n2.7\n42.0\n39.8\n2.2\n1971\n43.6\n45.5r\n-1.9r\n42.8\n45.5\n-2.7\n1968\nI\n32.1\n31.5\n0.6\n31.8\n31.3\n0.5\nII\n33.9\n32.6\n1.3\n33.5\n32.5\n0.9ʳ\nIII\n36.1\n34.2\n1.9\n35.5\n34.3\n1.3r\nIV\n34.3\n34.1\n0.2\n33.5\n33.8\n-0.2r\n1969\nI\n30.5\n30.6\n-0.2\n30.0\n30.3ʳ\n-0.4r\nII\n39.1\n38.4\n0.7\n37.9r\n38.3\n-0.3\nIII\n39.6\n37.3\n2.3\n38.3ʳ\n37.1\n1.2r\nIV\n40.1\n37.8\n2.3\n39.5r\n37.5ʳ\n2.0\n1970\nI\n41.3\n38.9\n2.4\n40.9\n38.9\n2.0\nII\n43.2\n39.5\n3.7\n42.3\n39.3\n2.9\nIII\n43.4\n40.1\n3.3\n42.8\n39.9\n2.9\nIV\n43.0\n41.3\n1.7\n41.8\n41.1\n0.8\n1971\nI\n45.0\n43.2\n1.8\n44.1\n42.9\n1.2.\nII\n43.9\n47.0\n-3.1ʳ\n42.8\n46.9\n-4.0\nIII\n46.7\n47.8r\n-1.1°\n45.9\n47.8\n-1.9\nIV\n38.9\n44.1°\n-5.2ʳ\n38.3\n44.2\n-6.0\n1972 I\n47.7\n53.7\n-6.0\n47.2\n53.9\n-6.7\nII\n46.3\n53.7\n-7.4\n45.9\n53.6\n-7.7\n1971 June\n43.9\n48.1ʳ\n-4.2r\n43.2\n48.1\n-5.0\nJuly\n41.9\n45.5\n-3.6\n41.1\n45.4\n-4.3\nr\nAugust\n44.1\n47.1ʳ\n-3.0\n43.4\n47.1\n-3.7\nSeptember\n54.1\n50.9\n3.2\n53.3\n50.9\n2.4\nOctober\n32.5\n42.3ʳ\n-9.8ʳ\n31.7\n42.3\n-10.6\nNovember\n37.9\n40.5ʳ\n-2.6r\n37.3\n40.5\n-3.2\nDecember\n46.3\n49.5r\n-3.2ʳ\n45.7\n49.8\n-4.1\n1972 January\n50.7\n54.5\n-3.8\n50.0\n55.2\n-5.2\nFebruary\n45.7\n52.8\n-7.2\n45.5\n52.8\n-7.3\nMarch\n46.7\n53.7\n-7.0\n46.2\n53.8\n-7.6\nGERALD FORD LIBRANT\nApril\n45.1\n53.5\n-8.4\n44.5\n53.3\n-8.7\nMay\n47.0\n53.6\n-6.6\n46.4\n53.7\n-7.3\nJune\n46.9\n53.9\n-7.1\n46.7\n53.7\n-7.0\n*The monthly balance of payments figures are only rough estimates and\nare subject to considerable revision.\nr = Revised.\nNote: Details may not add to totals because of rounding.\nTable 2\nU.S. Exports of Domestic and Foreign Merchandise\nby End-Use Commodity Categories\nIncluding Department of Defense Shipments\n(Seasonally adjusted; annual rates)\nbillions of dollars\n1971\n1972\n1st\n2nd\n1st\n2nd*\nHalf\nHalf\nQtr.\nQtr.\nMay\nJune\nFoods, feeds, and beverages\n6.1\n6.1\n7.0\n6.9\n7.1\n7.5\nIndustrial supplies and materials\n13.3\n12.2\n13.7\n12.5\n12.8\n12.5\nCapital goods excl. automotive\n15.2\n14.9\n16.5\n16.0\n16.1\n16.1\nCivilian aircraft and parts\n(3.4)\n(3.1)\n(3.3)\n(3.3)\n(4.0)\n(3.3)\nMachinery\n(11.6)\n(11.6)\n(12.9)\n(12.5)\n(12.4)\n(12.5)\nAutomotive vehicles and, parts\n4.5\n4.4\n4.8\n5.0\n5.1\n4.9\nTo Canada\n(3.2)\n(3.2)\n(3.6)\n(3.9)\n(4.0)\n(3.9)\nTo other\n(1.2)\n(1.2)\n(1.2)\n(1.1)\n(1.1)\n(1.1)\nConsumer goods\n2.7\n2.9\n3.3\n3.3\n3.3\n3.3\nAll other\n3.2\n2.9\n2.8\n3.0\n3.1\n2.7\nTotal\n45.0\n43.4\n48.2\n46.9\n47.6\n47.3\nAgricultural commodities\n8.0\n7.6\n9.1\n8.5\n8.7\n9.1\nNonagricultural commodities\n36.9\n35.8\n39.2\n38.4\n38.9\n38.2\nU.S. General Imports\nby End-Use Commodity Categories\n(Seasonally adjusted; annual rates)\nbillions of dollars\n1971\n1972\n1st\n2nd\n1st\n2nd.*/\nHalf\nHalf\nQtr.\nQtr.\nMay\nJune\nFoods, feeds, and beverages\n6.5\n6.3\n7.3\n6.8\n6.9\n7.0\nIndustrial supplies and materials\n16.6\n17.3\n18.91\n19.2\n19.2\n19.9\nFuels and lubricants\n(3.3)\n(4.1)\n(4.3)\n(4.6)\n(4.5)\n(4.6)\nIron and steel\n(2.9)\n(2.8)\n(2.7)\n(2.7)\n(2.9)\n(2.9)\nCaptial goods excl. automotive\n4.1\n4.1\n5.3\n5.4\n5.2\n5.7\nAutomotive vehicles and parts\n7.5\n8.4\n8.9\n9.4\n9.5\n8.5\nFrom Canada\n(4.4)\n(4.7)\n(5.0)\n(5.5)\n(4.9)\n(5.3)\nFrom other\n(3.1)\n(3.7)\n(3.9)\n(4.1)\n(4.6)\n(3.4)\nConsumer goods\n8.7\n8.4\n11.5\n11.0\n10.4\n11.3\nNondurable goods\n(3.3)\n(3.3)\n(4.2)\n(3.8)\n(3.6)\n(4.0)\nDurable goods\n(4.8)\n(4.6)\n(6.5)\n(6.4)\n(6.0)\n(6.5)\nUnmanufactured goods\n(0.6)\n(0.5)\n(0.7)\n(0.7)\n(0.7)\n(0.8)\nAll other\n1.6\n1.5\n1.8\n1.7\n1.7\n1.6\nTotal\n45.1\n46.0\n53.7\n53.7\n53.6\n53.9\nNote:\n(1)\nDetails may not add to totals because the commodity sections were\nindependently adjusted for seasonal variations.\n(2)\nTotals will not correspond to the Census basis totals in Table 1\nbecause Department of Defense Military Grant-Aid shipments are\nincluded in exports of domestic and foreign merchandise in Table 2.\nPreliminary = sum of three months.\nGERALD FORD LIBRARY\nTable 3\nImports as Per Cent of GNP\n(billions of current dollars)\nAnnual\nGNP\n/\nImports\nPercent\n1961\n520.1\n14.52\n2.79\n1962\n560.3\n16.22\n2.89\n1963\n590.5\n17.01\n2.88\n1964\n632.4\n18.65\n2.95\n1965\n684.9\n21.50\n3.14\n1966\n749.9\n25.46\n3.40\n1967\n793.9\n26.82\n3.38\n1968\n864.2\n32.96\n3.81\n1969\n930.3r\n35.80\n3.85\n1970\n976.4r\n39.80\n4.08ʳ\n1971\n1,050.4\n45.46\n4.33r\nHalf Years at Annual Rates, Seasonally Adjusted\n1968\n1H\n845.7\n31.91ʳ\n3.77\n2H\n882.7\n34.02\n3.85\n1969\n1H\n915.3ʳ\n34.29r\n3.75\n2H\n945.31\n37.30ʳ\n3.95r\n1970\n1H\n964.9r\n39.12\n4.05r\n2H\n988.0\nr\n40.48\n4.10\n1971\n1H\n1,033.2ʳ\n44.90\n4.35r\nr\n2H\n1,067.5ʳ\n46.02\n4.31\n1972\nIHP\n1,124.1\n53.74\n4.78\nQuarterly at Annual Rates, Seasonally Adjusted\n1967\nI\n774.4\n26.64\n3.44\nII\n784.5\n25.86\n3.30\nIII\n800.9\n26.17\n3.27\nIV\n815.9\n28.61r\n3.51\n1968\nI\n834.0\n31.28\n3.75\nII\n857.4\n32.54r\n3.80r\nIII\n875.2\n34.27ʳ\n3.92\nIV\n890.2\n33.76r\n3.79\n1969\nI\n907.0ʳ\n30.30ʳ\n3.34r\nII\n923.5ʳ\n38.27r\n4.14r\nIII\n941.7r\n37.08ʳ\n3.94r\nIV\n948.9ʳ\n37.52\n3.95r\n1970\nI\n958.0ʳ\n38.92\n4.06r\nII\n971.7ʳ\n39.32\n4.05ʳ\nIII\n986.3ʳ\n39.87\n4.04r\nIV\n989.7ʳ\n41.08\n4.15r\n1971\nI\n1,023.4ʳ\n42.91\n4.19r\nII\n1,043.0r\n46.89\n4.50r\nIII\n1,056.91\n47.80\n4.52r\nIV\n1,078.1\n44.23\n4.10r\nGERALD FORD LIBRARY\n1972\n1\n1,109.1ʳ\n53.93\n4.86r\nIIP\n1,139.0\n53.55\n4.70\n1/ Balance of payments basis.\nr = Revised.\nP = Preliminary.\nU.S. MERCHANDISE TRADE\nBalance of Payments Basis\nQuarterly, Seasonally Adjusted, Annual Rates\nBillions of Dollars\n60\n50\nExports\n40\nImports\n30\nFORD & LIBRARY GERALI\n20\n10\n1967\n1969\n1971\n1973\nU.S. MERCHANDISE TRADE\nBalance of Payments Basis\n1-2-1 Moving Averages\nSeasonally Adjusted, Annual Rates\nBillions of dollars 60\n55\n50\nImports\n45\nExports\nGERALD FORD MBRARA\n40\n35\nJ\nF\nM\nA\nM\nJ\nJ\nA\nS\n0\nN\nD\nJ\nF\nM\nA\nM\nJ\nJ\nA\nS\n0\nN\nD\n1971\n1972"
}