July 10, 1962 FOMC Minutes

FOMC minutes

foreign currencies. He noted that the Committee's discussions at the time this program was authorized contemplated that the currency operations would attempt to deal with temporary and reversible movements of funds. He saw no problem in the proposed arrangements as such, but he felt that every time one of these proposals came up it should be subjected to the original tests that the Committee had in mind in adopting the Authorization and Guidelines for these operations. His question was whether the Committee was developing an additional philosophy to be used in guiding the foreign operations that went beyond the original concept of short-term currency temporary adjustments. did not understand the approach of Mr. Mr. Mitchell said that he talking about helping the balance of pay Ellis. The Committee had been the members believed the dollar was ments situation. Presumably all of circumstances its convertibility could not overvalued and that in these a chance to make a few adjustments. In terms be sustained once there was seemed to him that the Committee was of the Committee's authorization, it to protect the dollar against a psychological run or the effects trying believe that this was a program that could be coming from it. He did not it was one the Committee would hope put on a three-month basis, rather, until it met its objective. could be renewed that the swap arrangements were obviously Chairman Martin remarked He then noted that Sanford had suggested earlier. buying time, as Mr. of swap arrangements with recommendations were for (1) approval Mr. Coombs' total amount of $200 million to Swiss National Bank and the BIS in the the

be split evenly between the two banks, the terms to be on the basis outlined in Mr. Coombs' message to the Committee earlier during this meeting; (2) approval in principle of a swap arrangement with the Bundesbank in the amount of $50 million, the details resulting from negotiations to be sub mitted to the Committee for approval. If these were approved, the Chairman said, it would be necessary to increase the limitation in the continuing authority directive, and he proposed an increase from $500 to $750 million. inquired whether the Committee wished to approve these He then three proposals. Mr. Mills stated that he would approve but that he had strong reservations along the lines indicated by Messrs. Bryan and Ellis. He felt that there had been some altering of the concept of the Committee's engagement since the plan for the foreign currency operations originally about the whole program, but he had been adopted. He had reservations new proposals. The Committee should go into each of would approve the with its eyes open and not in the belief that it was these arrangements as when the arrangements were originally discussed. following the same path that the Committee should go Chairman Martin said that he agreed with its eyes open. He then suggested that unless into each arrangement disagreement the Committee: there was a dollar-Swiss franc swap the completion of 1. Approve National Bank and the Bank arrangement with the Swiss Settlements as recommended by for International amount of $200 million; Coombs in the total Mr. 2. Authorize the negotiation of a $50 million swap arrange the Bundesbank, the terms to be submitted to ment with the Committee for approval; and,

3. Increase the limitation in the continuing authority directive from $500 to $750 million. No disagreement with these proposals was indicated. Thereupon, upon motion duly made and seconded, and by unanimous vote, the Federal Open Market Committee approved the following continuing authority directive on System foreign currency operations: The Federal Reserve Bank of New York is authorized and directed to purchase and sell through spot transactions any or all of the following currencies in accordance with the Guidelines on System Foreign Currency Operations issued by the Federal Open Market Committee on February 13, 1962: Pounds sterling French francs German marks Italian lire Netherlands guilders Swiss francs Belgian francs Canadian dollars Total foreign currencies held at any one time shall not exceed $750 million. Mr. Sanford stated that he would like to bring one other point to the attention of the Committee. The New York Bank has been studying various methods of accounting for profits (such as the small ones that have resulted from the recent sales of DM) and possible losses from foreign exchange transactions, from the point of view of the valuation of the foreign exchange portfolio and the point of view of settling with the other Reserve Banks. This was not a pressing matter, and it was a complicated subject. In due course, he expected that recommendations would be developed for

discussion with the Board's staff concerned with such matters, and subsequently with the Federal Open Market Committee. The date for the next meeting of the Federal Open Market Committee was set for Tuesday, July 31, 1962. Assistant Secretary