November 24, 1964 FOMC Minutes

FOMC minutes

Mr. Mills said he was somewhat concerned that the approach being taken might reflect some elements of panic on the System's part. There had been no discussion of conditions that the Federal Reserve System might place on a further extension of credit to the British. He was not clear as to what assurances the Committee might have that assistance rendered at this time would plug the gap and save the situation rather than simply constitute a further contribution and a further liability assumed by the Federal Reserve. Mr. Hayes could have been in error ir offering the System's services in the effort to make up this package. The continental European countries might well view such actions as reflecting more than enlightened self-interest on the System's part; perhaps they would take them to :.ndicate that the situation posed a problem to the U.S. and that there was concern about the stability of the dollar. would be better for the British to It seemed to Mr. Mills that it make their own arrangements. responded that it was primarily the task of the Mr. Hayes the System, to see that the British made Treasury, rather than of arrangements and to assure that their program the best possible emphasized that the System was not taking was successful. He also followed for the swap arrangements. As any risks under procedures he agreed that the other countries to how the package was arranged, conceivable to him that the attitude should help. However, it was

of continental European countries toward the proposed package of credits would be strengthened if they felt that the United States supported it fully. This country clearly had a self-interest in avoiding a crisis that could involve the dollar. Mr. Mills said that he was not challenging the suggestion that the United States should be helpful ir the present situation. But he did have doubts about the approach on psychological grounds. There was no certainty that the proposed package would solve the problem, and he was sure that the continental Europeans would not approach the problem without concern over the means by which it ultimately would be resolved. Mr. Daane said it seemed to him that Mr. Hayes' position was correct. In his own thinking he began with the view that Mr. Coombs had expressed: that the proposed package of credits was by far the better of the two alternatives Mr. Coombs had outlined, and it was the last resort open at present. Secondly, with respect to the U.S. share, he agreed that the Committee should demonstrate to participate, in the interest of furthering its willingness cooperation. But he thought it would be international financial better for the larger share of the total package to come from United States, particularly since the drain sources other than the other than the U.S. He did not on sterling had come from countries the arrangements to have the appear believe it would be wise for primarily Anglo-American cooperation. ance of reflecting

Mr. Hayes agreed. With respect to Mr. Hickman's comment, he felt that the Committee should consider increasing the swap line by $250 illion at present with the realization that the Special Manager might want to recommend that the Committee authorize a larger increase if necessary to make up a deficit in the total package. Chairman Martin said that he thought Mr. Mills had touched on a macter of legitimate concern, but one that was a problem primarily for the United Kingdom and the U.S. Treasury. In his million was a reasonable amount by which to increase opinion $250 line at present. He added that the negotiations for the the swap package would have to take place promptly, and he inquired total the Committee was prepared to authorize the recommended whether increase. Thereupon, an increase in the swap with the Bank of England to arrangement million, as recommended by Mr. Coombs, $750 unanimously, subject to the was approved of the Bank of England and to agreement development of a package the satisfactory of credits of the type described by Mr. this action, it was Coombs. In taking that the aggregate amount of understood currencies held under reciprocal foreign authorized in the currency arrangements authority directive with continuing to foreign currency operations respect was increased by $250 million to $2.350 billion.

Chairman Martin reiterated that the matters discussed at this meeting should be considered highly confidential by all con cerned. He added that Committee members not in Washington would be kept informed of developments. Thereupon the meeting adjourned. Secretary's Note: Acvice of completion of the arrangements for assistance to the United Kingdom was received on November 25. An amended continuing authority directive was transmitted to the Federal Reserve Bank of New York, and the following anrouncement was released to the press at approximately 2 p.m. EST: The Federal Reserve System and the U.S. Treasury today issued the following statement: Eleven countries and the United Kingdom today made arrangements providing $3 billion to pack up Britain's determination to defend the pound sterling. Today's funds are in addition to the $1 billion drawing the United Kingdom will obtain from the International Monetary Fund at the end of this month under an existing standby. Austria, Belgium, Canada, France Germany, Italy, Japan. The Netherlands, Sweden, Switzerland, and the United States, joined by the Bank for International Settlements, moved quickly to mobilize a massive counter attack on speculative selling of the pound. The International Monetary Fund drawing, which can have a maturity up to 3 years, will enable the British to pay off all outstanding short term credits from central banks, including the Federal Reserve. The currency swap arrangement with the Federal Reserve System has been raised by $250 million to $750 million, and a $250 million credit has been made available by the U.S. Export-Import Bank. (These amounts are included in the total package of $3 billion.) n Assistant