July 16, 1968 FOMC Record of Policy Actions

FOMC minutes

for ratification of this Votes action: Messrs. Martin, Hayes, Daane, Galusha, Hickman, Brimmer, Kimbrel, Maisel, Mitchell, Robertson, and Bopp. Votes against Sherrill, of this action: None. ratification (Mr. Bopp voted as an alternate member in place of Mr. Ellis, whose membership on the Committee had terminated on June 30, 1968.) between the Bank of France and the Although the arrangement the first negotiated when the System's swap Federal Reserve had been established in 1962, it had remained at $100 million network was other lines in the network had been since early 1963 while various The increase in this arrangement served enlarged from time to time. sizes of the arrangements in the System's swap to bring the relative better balance. It formed part of a package of credit network into Bank of France at this time by a number facilities provided to the to help deal with destabilizing exchange market of central banks pressures. the foreign currency authorization The Committee also amended at this meeting. Under paragraph 1C(1) of the in another respect authorization, as it had been amended on November 14, 1967, the Reserve Bank of New York was authorized to have outstanding Federal commitments to deliver foreign currencies to the Stabilization forward to $350 million equivalent. The limit had been increased Fund of up level (from a previous figure of $200 million) in November to that to facilitate the "warehousing" by the System Account of Stabilization Fund holdings of sterling if the resources of the Stabilization Fund

the demands upon them from time to proved inadequate to meet all time in the future. approved an increase in the At this meeting the Committee limit in question up to an amount not exceeding $1,050 million equivalent, on the understandings that (1) the specific amount would be determined by Chairman Martin (or in his absence, Mr. Robertson, Vice Chairman of the Board of Governors) and (2) that the action would become effective upon a determination that it was his absence, Mr. Robertson) Martin (or in by Chairman in the national interest. Votes for this action: Messrs. Martin, Hayes, Brimmer, Daane, Galusha, Hickman, Kimbrel, Maisel, Mitchell, Robertson, Sherrill, and Bopp. Votes against this action: None. (Mr. Bopp voted as an alternate member in place of Mr. Ellis, whose membership on the Committee had terminated on June 30, 1968.) This action was taken against the background of discussions at meetings in Basle, Switzerland, on July 6-8, 1968, and prior discussions between representatives of the U.S. Treasury and the Federal Reserve. At the Basle meetings agreement in principle had been reached among representatives of the Bank for International Settlements, the Bank of England, and 12 other central banks including the Federal Reserve regarding new arrange ments for offsetting fluctuations in sterling balances held by countries in the overseas sterling area (OSA). In general, the

agreement provided for the extension of a medium-term facility of $2 billion equivalent to the Bank of England by the BIS, with backing provided by the participating central banks, acting where appropriate on behalf of their Governments. It was understood that the agreement was contingent on the satisfactory completion of negotiations by the British authorities with the OSA countries concerning the management by the latter of their sterling reserves. In the System's preliminary discussions with the U.S. Treasury it had been agreed that the Treasury should participate as principal in the arrangement, with the dollars to be made available on a swap basis against sterling by the Stabilization Fund. It was also agreed that if the resources of the Stabilization Fund should prove insufficient from time to time to meet these and other commitments, the Federal Reserve would undertake to warehouse temporarily for the Stabilization Fund necessary portions of the sterling acquired by the latter. It was reported at this meeting of the Committee that the U.S. share in the arrangement would be in the neighborhood of $600 million to $700 million. After approving System participation in the arrangement in the manner described, the Committee noted that the agreement was contingent on certain negotiations by the British authorities and that the specific size of the U.S. share had not yet been determined. Accordingly, it was decided that both the effective date of the amendment to paragraph 1C(1) of

the authorization and the new figure for maximum forward commitments to the Stabilization Fund to be established by that amendment (within the limit set by today's action) should be subject to determination by Chairman Martin, or in his absence, Mr. Robertson. Subsequently, agreement was reached on the new arrangement at a meeting in Basle on September 9, 1968, with the U.S. share established at $650 million, and the arrangement went into force on September 23, 1968. On September 24, Chairman Martin determined that an increase in the limit on forward commitments to deliver foreign currencies to the Stabilization Fund of $650 million equivalent, to $1 billion, was in the national interest. Accord ingly, effective September 24, 1968, paragraph 1C(1) of the authorization for System foreign currency operations was amended to read as follows: 1. 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: C. To have outstanding forward commitments undertaken under paragraph A above to deliver foreign currencies, up to the following limits: (1) Commitments to deliver foreign currencies to the Stabilization Fund, up to $1 billion equivalent; * ***