February 7, 1967 FOMC Minutes

FOMC minutes

with a continued moderate deficit in the U.S. balance of payments. Similarly, they viewed improvement in the adjustment process as a continuing process, not capable of clear-cut delineations. Thus, there definitely had been a softening of attitudes on the precon ditions for activation. On the question of decision making, Mr. Daane said, a "bicameral approach," involving a separate vote outside the Fund for a limited group, was rejected. Mr. Van Lennep of the Netherlands made a strong case for a "double-majority" procedure in which a limited group would have special voting rights within the Fund. This approach too was criticized by representatives from outside the Ten. Instead, the approach taken was to lay greater stress on consultation prior to formal decision-making. Interestingly, there seemed to be a general consensus that reserve creation should be built into the IMF framework, with the scheme to be operated through an affiliate of the Fund. Although not all issues had been resolved, it was becoming increasingly clear that decision-making would be fully within the IMF or an affiliate. As Dr. Emminger had put it at the press conference, that was gratifying progress. added that the French had tried to have the problem Mr. Daane of gold placed on the agenda for the next joint meeting, to be held in Washington in late April. Mr. Schweitzer had firmly rejected that

proposal, saying that the only purpose of the joint meetings was to develop a plan for reserve asset creation, and Dr. Emminger pointed out, in turn, that the Deputies' mandate from the Ministers and Governors of the Ten had specifically excluded the subject of the gold price. Mr. Deming, Mr. Hockin of Canada, and Mr. Van Lennep also had spoken against the French proposal. In sum, Mr. Daane said, from the entire set of meetings one got a clear sense of further progress with respect to contingency planning, which was favored by all of the Europeans except the French. The joint meeting was marked by a spirit of constructive advance similar to that at the first such meeting in Washington last November. One could take a generally optimistic view and say, as Dr. Emminger had in his press conference, that while the full plan might not be agreed upon by the time of the meetings in Rio de Janeiro this autumn, the main elements of a plan might be agreed upon by that time. In a concluding observation, Mr. Daane said that the other main item on the agenda at the Group of Ten meeting--which was carried over in part to the joint meeting--dealt with the question of holding and use of the new asset. A working group made a meetings in which three approaches preliminary report at the London were distinguished--a holding limit, a transfer ratio linking gold asset, and a creditor ratio. There seemed to be less and to the new less sentiment for the second of those approaches.

Following Mr. Daane's remarks, Chairman Martin said that he would report briefly on his visit last week to London, where he had spoken before the Overseas Bankers Club. He found that people at the Bank of England were very much encouraged by the progress Britain had made recently, on which Mr. Coombs had reported this morning. He had been interested to find a general feeling in London that France's decision to internationalize its gold market was taken deliberately in order to make it more difficult for Britain to join the Common Market. Some South Africans with whom he had talked were quite convinced that the move would have no effect on the practices of their country; they felt that the shipping arrangements between South Africa and London offered benefits to them that would offset the possibility of higher prices in the Paris gold market. The Chairman concluded by expressing the hope that the recent gains in British reserves would continue. It was agreed that the next meeting of the Committee, which would be the annual organizational meeting, would be held on Tuesday, March 7, 1967, at 9:30 a.m. Thereupon the meeting adjourned. Secretary

ATTACHMENT A CONFIDENTIAL (FR) February 6, 1967 Drafts of Current Economic Policy Directive for Consideration by the Federal Open Market Committee at its Meeting on February 7, 1967 FIRST PARAGRAPH The economic and financial developments reviewed at this meeting indicate further moderation in various expansionary forces, with continued large inventory accumulation. The pace of advance of broad price measures has slowed, although upward price and cost pressures persist for many goods and services. Interest rates have declined markedly, financial conditions generally are considerably easier, and bank credit expansion recently has been vigorous. While interest rates abroad have also declined, trends in international transactions indicate a continuing serious balance of payments problem. In this situation, it is the Federal Open Market Committee's policy to foster money and credit conditions, including bank credit growth, conducive to noninflationary economic expansion and progress toward reasonable equilibrium in the country's balance of payments. SECOND PARAGRAPH Alternative A To implement this policy, and taking account of the current Treasury financing, System open market operations until the next meeting of the Committee shall be conducted with a view to maintaining about the prevailing conditions in the money market, but operations shall be modified as necessary to moderate any apparently significant deviations of bank credit from current expectations. Alternative B To implement this policy, and taking account of the current Treasury financing, System open market operations until the next meeting of the Committee shall be conducted with a view to attaining somewhat easier conditions in the money market than prevail at present, unless bank credit appears to be expanding significantly faster than currently anticipated.