March 6, 1962 FOMC Minutes

FOMC minutes

situation. Also, before any similar proposals reached a head, appropriate memoranda would be distributed to the Committee. Thereupon, upon motion duly made and seconded, the action of a majority of the members of the Federal Open Market Committee on February 28, 1962, in approving the then proposed $50 million swap arrangement with the Bank of France was ratified. Also, upon motion duly made and seconded, the other foreign currency transactions for the System Open Market Account since the meeting of the Open Market Committee on February 23, 1962, were approved, ratified, and confirmed. In further discussion, Mr. Mitchell made the suggestion that some appropriate person be asked to give close thought to the question of relations between the Stabilization Fund and the Federal Reserve, in light of factors such as the Committee had been considering today. He would have no objection to the particular transaction proposed by Mr. Coombs, but he would not like to think of it as establishing a precedent. Chairman Martin agreed that the Committee should continue to work on the matter. A lot of work had been done already, he noted. The documents presented to and accepted by the Committee included guidelines for operations in foreign currencies and a memorandum on the scope and character of initial System foreign currency operations. In considering those matters, he recalled, it had been recognized that it was difficult to write precise rules at this stage.

Mr. Balderston inquired whether it was the thinking of the staff that forward operations should be handled exclusively by the Stabilization Fund, and Mr. Young replied in the negative, saying that this was a short-run compromise. How the matter might develop over a loner period of time was intended to be left open. Mr. Swan commented that a critical point was whether the currencies that the Federal Reserve purchased from the Stabilization Fund were currencies tnat it wanted for its own purposes. Mr. Coombs expressed agreement, adding that Swiss francs and German marks were both good currencies. Mr. Ellis inquired about the degree of urgency in purchasing marks from the Stabilization und, to which Mr. Coombs replied that the Stabilization Fund might nave an opportunity to pick up Swiss francs tomorrow. As stated earlier, the noldings of hard currencies in the Stabilization Fund amounted at present to $130 million, against the thinking of the Treasury that the ceiling should be $120 million. Therefore, the Stabilization Fund was strained to the utmost at this moment. discussion, it was After further agreed unanimously to authorize the purchase for the System Open Market from the Treasury of German Account marks up to $25 million equivalent now held in the Stabilization Fund. Authorization was also given for the starting of negotiations with the

Bank of England and the Swiss National Bank concerning swap arrangements with those institutions. Chairman Martin stated for the information of the Committee that on February 16, 1962, he had sent to the Secretary of the Treasury, as Chairman of the Natonal Advisory Council on International Monetary and Financial Problems, a copy of the authorization, as approved by the Open Market Committee on February 13, 1962, for operations in foreign currencies for the System Open Market Account. This had been sent in compliance with section 4(c) of the Bretton Woods Agreements Act. The Chairman also reported that in response to the request made by members of the Congress at the time of hearings on H. R. 10162, a bill to authorize U. S. contributions in connection with expansion of the standby resources of the International Monetary Fund, he had sent to the Chairman of the House Committee on Banking and Currency on March 1, 1962, the following documents for inclusion in the record of the hearings: (1) A memorandum from the Open Market Committee's Gen eral Counsel dated November 22, 1961, expressing the opinion currency operations by the System were that foreign authorized by the Federal Reserve Act; A summary opinion rendered by the Open Market (2) the Congressional Joint Economic General Counsel to Committee's under date of February 19, 1962; Committee, upon request, (3) A copy of the letter from the General Counsel of the January 8, 1962, expressing his concurrence and Treasury dated that of the Attorney General in the opinion of the Committee's

and enclosing a memorandum that he had sub General Counsel of the Treasury to the same effect; mitted to the Secretary (4) A copy of the letter sent by Chairman Martin on 16, 1962, to the Chairman of the National Advisory February of the enclosed authorization of Council. along with a copy Committee for System foreign currency the Federal Open Market operations; and (5) A copy of an action by the National Advisory Council that the Council was in February 28, 1962, indicating dated accord with the System's decision to undertake foreign currency operations. out that, this meant that the authorization Chairman Martin pointed February 13, 1962, was now a for foreign currency operations, approved public document, the Federal Open Market the next meeting of It was agreed that Tuesday, March 27, 1962. would be held on Committee The neeting then adjourned. Secretary