March 27, 1962 FOMC Minutes

FOMC minutes

Mr. Mitchell said he would like to ndorse that position. He thought it important that the System not engage in straighten ing out various short-run moves of this kind unless there was reason to believe that they might touch off some other development. In reply, Mr. Coombs said that, with the exchanges in a sensitive state, he could not predict what the reaction might be to a significant depreciation of the dollar as against the German mark. In view of the many existing uncertainties, including the possible reaction to announcement of a relatively large U. S. gold loss this week, he would be inclined to seek a little protction in the form of keeping the dollar from going too low as against the mark. Mr. Wayne inquired whether, from the standpoint of Committee procedure, this situation could not be compared to the situation in the domestic area where the Committee gave a general instruction to the Manager of the System Open Market Account and relied upon his judgment of the feel of the market. Chairman Martin expressed the view that in the current ex perimental stage of foreign currency operations, the Special Manager should proceed in a situation of this kind on the basis of his best judgment. Afterward, the operations could be evaluated, but he felt that, at this juncture the Committee must rely substantially on the judgment of the Special Manager. In further discussion, Mr. Coombs indicated that he was

inclined to feel that in this particular situation the movement of the exchange rate was of some importance. With the recent reduction of the British bank rate, no one knew exactly what the new relation ships would be. That circumstance, combined with the prospective announcement of a loss in gold stock, would incline him on balance to think that it was a good idea to suport the dollar against the mark. The greater the degree of uncertainty in the market, the stronger would be the case for moving in to check any weakening of the dollar. Chairman Martin again expressed the view that this was the kind of decision that the Committee ought to leave to the discretion of the Special Manager at this juncture of the System foreign exchange program. Thereupon, the Special Manager was authorized to proceed, in the light of market developments, to make such sales of System holdings of German marks as in his judgment might seem appropriate. There had been distributed to the Committee copies of a translation of an article titled "A New American Proposal: A Pool for Gold Purchases in London" that a appeared in the Journal de Geneve of March 8, 1962. The article noted that in the latter part of 1961 a pool of banks of issue was created with the aim of supply ing the London market wi.th gold and that the pool's operations were suspended after it had proven its effectiveness in stabilizing the

market. According to the article, the American authorities had now proposed to other central banks the establishment of a pool for the purchase of gold in London. Mr. Coombs commented on these articles and related matters. In a discussion based on the information reported by Mr. Coombs, Mr. Bryan referred to a suggestion made at this morning's session by Mr. Clay, which was to the effect that it would seem help ful if the Open Market Committee could have as much information as possible on various steps being undertaken by the United States Government to cope with the balance-of-payments problem. Chairman Martin commented that perhaps something of that kind could be obtained from the Treasury. He doubted, however, whether there was too much to report beyond what had been carried in the press. The nature of the various undertakings had been fairly well spelled out in the press; the question was how effective they would be. After further general discussion relating to the balance of payments, the meeting of the Open Market Committee recessed and there ensued a meeting of the Board of Governors with the Presidents of the Federal Reserve Banks. At the conclusion of that meeting, Chairman Martin noted that some consideration had been given recently by the Board of Governors to the possible desirability of publishing verbatim the minutes of

the Open Market Committee for a period beginning around 1950 and continuing until some fairly recent date. He indicated some of the reasons that had caused the question to be brought up for discussion and stated that the subject would be placed on the agenda for con sideration at the next meeting of the Open Market Committee. It was agreed that the next meeting of the Federal Open Market Committee would be held on Tuesday, April 17, 1962. The meeting then adjourned. Secretary