October 2, 1962 FOMC Minutes

FOMC minutes

Mr. Coombs likewise brought out that the authorization of the Open Market Committee to conduct negotiations looking toward a swap arrangement with the Austrian National Bank suggested the desirability of amending the Committee's continuing authority directive on foreign currency operations at this time by adding the Austrian schilling to the list of currencies that the New York Reserve Bank was authorized and directed to purchase and sell. If the Committee wished to con sider the possibility of a swap facility with the Bank of Japan, it might also want to add the Japanese yen to the authorized list of currencies. In addition, consideration of swap arrangements with the Austrian National Bank or the Bank of Japan would suggest that the authorize the Federal Reserve Bank of New York to Board of Governors open and maintain accounts with such banks. In a discussion of the items referred to by Mr. Coombs, expressed the view that it would be inadvisable for the Mr. Mitchell to consider the possibility of entering into Open Market Committee the Bank of Japan in the absence of more a swap agreement with adequate background information. Going beyond this particular case, of discussion by the Committee of other he suggested that in advance in the future, it would be desirable for swaps that might be proposed supply written documentation to assist the Committee in the staff to forming a judgment.

Mr. Young noted that there was a distinction between the Austrian and Japanese cases. The Austrians had met the conditions of convertibility of the International Monetary Fund, whereas the Japanese were only now going through that process. It might be some little time before the Japanese had met the convertibility conditions. Therefore, consideration of a possible swap arrangement with the Bank of Japan might well be deferred until the staff had provided the suggested documentation. After further discussion, during which Mr. Coombs expressed agreement with the comments made by Mr. Young in regard to the Japanese matter, Chairman Martin expressed the view that Mr. Mitchell had raised a valid point on the matter of procedure. In the future, it would seem desirable if the staff could furnish, in advance of Committee discussion, background documentation along the lines suggested. done in several instances in the past when swap agreements This had been were under consideration. With respect to the Committee's Guidelines, Mr. Mills suggested that the impression may have been left from the discussion today that the Guidelines were not fixed. He expressed doubt as to whether that of the Open Market Committee when the Guidelines were was the judgment February 13, 1962. It was in order to bring up the approved on question of possible relaxation of the Guidelines, but as matters stood

he felt that the Guidelines had been intended by the Committee as a stricture in the handling of foreign currency operations. Chairman Martin replied that this was why Mr. Mitchell had performed a service in pointing out that the Austrian swap was pro posed on a basis that would constitute an exception to the Guidelines. If changes were to be made in the Guidelines, however, he felt that the question should be considered fully by the Open Market Committee. Comments by other members of the Committee reflected an understanding that the Guidelines were not being changed at this time, that the proposed Austrian swap would be entered into on a basis that would constitute an exception to the Guidelines, and that further consideration might be given by the Committee at an appropriate time to whether the Guidelines should be formally amended. There was unanimous agreement that consideration of the pos sibility of entering into a swap agreement with the Bank of Japan, as and when the situation with respect to the Japanese yen admitted that possibility, would await the furnishing of appropriate background documentation to the Open Market Committee. Thereupon, upon motion duly made and seconded, and by unanimous vote, the con tinuing authority directive to the Federal Reserve Bank of New York on System foreign currency operations was amended so as to authorize and direct the New York Reserve Bank, until otherwise directed by the Fed eral Open Market Committee, to execute transactions in the System Open Market Account in accordance with the following directive:

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 Austrian schillings Total foreign currencies held at any one time shall not exceed $1 billion. It was agreed that the next meeting of the Federal Open Market Committee would be held on Tuesday, October 23, 1962. The meeting then adjourned. Secretary.