June 19, 1962 FOMC Minutes

FOMC minutes

Mr. Coombs then noted that the System had completed negotiations with the National Bank of Belgium for a six-month $50 million Belgian franc-dollar swap. It was expected that this would be put on the books tomorrow. (This swap arrangement was approved in principle by the Committee at the May 29 meeting and was finally approved on June 18, 1962, upon poll of the Committee.) Since the May 29 meeting, the Belgians had purchased $17 million of gold, probably reflecting a corresponding inflow of dollars during that period. If further inflows should occur, he expected inquiries Bank of Belgium as to whether the System wanted from the National the inflow or would prefer that the Belgians take gold. to mop up have to be met on an ad hoc basis. Here again, Such a problem would Reserve holdings of Belgian francs were reasonably however, the Federal to the probable size of swings in the account of sizable in relation the National Bank of Belgium. continued to discuss with Coombs reported that he had Mr. and telephone the possibility of a the Swiss National Bank by cable As mentioned at the May 29 Swiss franc-dollar swap arrangement. with the Swiss in terms he had previously talked Committee meeting, of $150 million, with an immediate drawing of $50 of a standby swap and largely in reflection beginning of this month, million. Since the

of the stock market situation, the Swiss National Bank had taken in another $75 million. Of this amount, it had been possible to fit a part under the Swiss ceiling of roughly $175 million, and the U. S. Stabilization Fund had mopped up some of the inflow. However, there remained in the hands of the Swiss National Bank holdings of dollars over and above their ceiling, which situation was putting pressure on the National Bank. The Bank's management would like to move on the swap proposal but apparently was encountering certain legal difficulties. Here again, particularly in view of the willingness and desire of the National Bank to be as helpful as possible, Mr. Coombs would be inclined to make rather liberal use of the proceeds of any swap that might be negotiated. Mr. Coombs turned next to the continued heavy selling pressure on the Canadian dollar. The Bank of Canada had lost $560 million in reserves from January to May, and a heavy speculative onslaught had cost the Bank $245 million thus far this month. It had been financing the deficit by running down dollar balances and also by selling gold; the gold loss in the past month amounted to $140 million. Mr. Coombs reported that he had talked with the Governor of of Canada by telephone on three or four occasions about the Bank the possibility of a swap arrangement. The Governor had appeared

hopeful that a move could be made on some such arrangement once the Canadian elections were over; he continued to feel that a swap of roughly $250 million would be required to have a real impact on confidence. It also appeared that the Canadians might seek recourse to a drawing on the International Monetary Fund. Unfortunately, Mr. Coombs pointed out, the results of the recent Canadian elections were not clean cut, leading to the likelihood of a coalition government. It would remain to be seen whether an effective financial program could be developed. After further comments on the Canadian situation, Mr. Coombs said he had found it difficult to decide what recommendation to make to the Committee. On balance, however, he would recommend that the Federal Reserve wait a little and see what developed, that is, whether the Canadians decided to go to the Monetary Fund and what sort of financial program they could put together, before initiating any new approach to the Bank of Canada regarding a swap. If the Bank of Canada should raise a question as to the possibility of a standby swap arrangement, it might be appropriate to inquire what the Canadians were going to do with regard to the possibility of borrowing from the Monetary Fund. The Committee might want to consider a swap arrangement only if it were part of a larger package. No disagreement was expressed with Mr. Coombs' recommendation.

Mr. Coombs next reported that there had been a fair amount of selling pressure on the dollar in the Frankfurt market today. There seemed to be a speculative flow of funds into Germany, and the dollar mark rate had been driven up to $.2507 in Frankfurt this morning. The German Federal Bank had intervened this morning to the extent of $25 million, and the rate had moved to somewhat below $.2506. There had been a suggestion from the German Federal Bank by telephone that the Federal Reserve might intervene this afternoon to keep the rate from going above $.250625. Mr. Coombs thought that intervention on the basis indicated would be suitable. Therefore, unless there was some objection on the part of the Committee, he would propose to proceed in that manner. No objection on the part of the Open Market Committee was indicated. Mr. Coombs then commented briefly on developments in the London gold market and responded to certain questions in that regard. upon motion duly made Thereupon, and seconded, the System transactions in foreign currencies during the period through June 18, 1962, were May 29 ratified, and confirmed. approved, meeting of the Federal Open Market It was agreed that the next Committee would be held on Tuesday, July 10, 1962. The meeting then adjourned. Assistant Secretary.