November 14, 1967 FOMC Record of Policy Actions

FOMC minutes

in financial markets concerning enact increased doubts ment of the President's fiscal program. In this situation, of the Federal Open Market Committee to it is the policy financial conditions, including bank credit growth, foster conducive to sustainable economic expansion, recognizing price stability for both domestic the need for reasonable and balance of payments purposes. this policy, System open market To implement 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 apparent tendency for bank credit to expand signif icantly more than currently expected. Votes for this action: Messrs. Martin, Hayes, Brimmer, Daane, Francis, Maisel, Mitchell, Robertson, Scanlon, Sherrill, Swan, and Wayne. Votes against this action: None. 2. Amendment to authorization for System foreign currency operations. The Committee amended paragraphs 1B(3) and 1C(1) of the authorization for System foreign currency operations, in each case of the date of a determination by Chairman Martin that such effective as accordance with the position of the United States in the action was in current international negotiations concerning credit assistance to the In the amendment to paragraph 1B(3) the limit on United Kingdom. System Account holdings of sterling purchased on a covered authorized or guaranteed basis was increased from $200 million to $300 million the amendment to paragraph 1C(1) the limit on out equivalent. In to deliver foreign currencies to the standing forward commitments Stabilization Fund was increased from $200 million to $350 million and language restricting the foreign currencies covered equivalent, to currencies "in which the U.S.Treasury has outstanding by the paragraph indebtedness" was deleted.

Chairman Martin made the indicated determination on November 21, 1967, for the amendment to paragraph 1B(3) and on November 22, 1967, for the amendment to paragraph 1C(1). Accordingly, the respective amendments became effective on those dates. Uith these two amendments, the first paragraph of the authorization read as follows: The Federal Open Market Committee authorizes and directs the Federal Reserve Bank of New York, for System Open Market Account, to the extent necessary to carry out the Committee's foreign currency directive: A. To purchase and sell the following foreign currencies in the form of cable transfers through spot or forward transactions on the open market at home and abroad, including transactions with the U.S. Stabilization Fund established by Section 10 of the Gold Reserve Act of 1934, with foreign monetary authorities, and with the Bank for International Settlements: Austrian schillings Belgian francs Canadian dollars Danish kroner Pounds sterling French francs German marks Italian lire Japanese yen Mexican pesos Netherlands guilders Norwegian kroner Swedish kronor Swiss francs B. To hold foreign currencies listed in paragraph A above, up to the following limits: (1) Currencies held spot or purchased forward, up to the amounts necessary to fulfill outstanding forward commitments; (2) Additional currencies held spot or purchased forward, up to the amount necessary for System operations to exert a market influence but not exceeding $150 million equivalent; and

(3) Sterling purchased on a covered or basis in terms of the dollar, under agree guaranteed ment with the Bank of England, up to $300 million equivalent. C. To have outstanding forward commitments undertaken under paragraph A above to deliver foreign currencies, up to the following limits: Commitments to deliver foreign currencies (1) to the Stabilization Fund, up to $350 million equivalent; Commitments to deliver Italian lire, under (2) special arrangements with the Bank of Italy, up to $500 million equivalent; and commitments to deliver foreign (3) Other forward currencies, up to $275 million equivalent. currencies and to permit foreign D. To draw foreign banks to draw dollars under the reciprocal currency arrange ments listed in paragraph 2 below, provided that drawings by either party to any such arrangement shall be fully liquidated within 12 months after any amount outstanding at that time was first drawn, unless the Committee, because of exceptional circumstances, specifically authorizes a delay. Votes for this action: Messrs. Martin, Hayes, Brimmer, Daane, Francis, Maisel, Mitchell, Robertson, Scanlon, Sherrill, Swan, and Wayne. Votes against this action: None. In his report on the negotiations now in process concerning international credit assistance to the United Kingdom, the Special Manager for foreign currency operations noted that one possible form of U.S. participation in such assistance was an undertaking by U.S. monetary authorities to acquire additional sterling. The previous authority to acquire sterling, including the authorization to acquire up to $200 million for System Account, had proved useful at times in the past in market operations undertaken by the Special Manager for purposes specified in the Committee's foreign currency directive.

The Special Manager indicated that in his judgment an increase of $100 million in the limit on such holdings by the System was justified in light of possible future needs for similar market operations. Accordingly, he recommended that if in the current negotiations the United States were to undertake to acquire additional sterling, $100 million should be acquired for System account and the remainder for Stabilization Fund account. The Special Manager also indicated that if the arrangements were concluded on the basis he had suggested the resources of the Stabilization Fund might be inadequate to meet all demands upon them from time to time in the future. Accordingly, he recommended the amendments to paragraph 1C(1) of the authorization described above to enable the System Account to "warehouse" part of the Treasury's holdings of sterling if that should prove desirable. Past operations undertaken under the terms of paragraph 1C(1) had been limited to the purpose of facilitating repayment by the Treasury of maturing bonded debt denominated in foreign currencies. After discussion, the Committee concurred in the recommendations of the Special Manager and took the actions indicated.