August 24, 1971 FOMC Record of Policy Actions

FOMC minutes

accounts maintained at the Federal Reserve Bank of New York, on a cash, regular, or deferred delivery basis, for the System Open Market Account at market prices and, for such Account, to exchange maturing U.S. Government and Federal agency securities with the Treasury or the individual agencies or to allow them to mature without replacement; provided that the aggregate amount of U.S. Government and Federal agency securities held in such Account at the close of business on the day of a meeting of the Committee at which action is taken with respect to a current economic policy directive shall not be increased or decreased by more than $2.0 billion during the period commencing with the opening of business on the day following such meeting and ending with the close of business on the day of the next such meeting. Votes for this action: Messrs. Burns, Hayes, Brimmer, Clay, Daane, Kimbrel, Maisel, Mayo, Mitchell, Morris, Robertson, and Sherrill. Votes against this action: None. This action, which was taken under legislation enacted in September 1966, was for the purpose of widening the base of System open market operations and at the same time adding breadth to the market for agency securities. In November 1966 the Committee had authorized repurchase agreements in agency issues, and on a number of subsequent occasions it had considered the desirability of also authorizing outright transactions. The decision to do so at this time was taken against the background of the substantial growth in the market for agency issues in recent years, and the consequent reduction of the risk that System purchases or sales could dominate the market. The Committee also approved certain initial guidelines for the conduct of open market operations in agency issues, with the

understanding that they would be subject to review and revision as experience was gained. These initial guidelines were as follows: 1. System open market operations in Federal agency issues are an integral part of total System open market operations designed to influence bank reserves, money market conditions, and monetary aggregates. 2. System open market operations in Federal agency issues are not designed to support individual sectors of the market or to channel funds into issues of particular agencies. 3. As an initial objective, the System would aim at building up a modest portfolio of agency issues, with the amount and timing dependent on the ability to make net acquisitions without undue market effects. 4. System holdings of maturing agency issues will be allowed to run off at maturity, at least initially. 5. Purchases will be limited to fully taxable issues for which there is an active secondary market. Pur chases will also be limited to issues outstanding in amounts of $300 million or over in cases where the obligations have a maturity of five years or less at the time of purchase, and to issues outstanding in amounts of $200 million or over in cases where the securities have a maturity of more than five years at the time of purchase. 6. System holdings of any one issue at any one time will not exceed 10 per cent of the amount of the issue out standing. There will be no specific limit on aggre gate holdings of the issues of any one agency. 7. No new issue will be purchased in the secondary market until at least two weeks after the issue date. 8. All outright purchases, sales and holdings of agency issues will be for the System Open Market Account. 3. Amendment to authorization for System foreign currency operations. The Committee ratified actions taken by members on August 9 and 11, 1971, to increase the System's swap arrangements with the

National Bank of Belgium from $500 million to $600 million and with the Swiss National Bank from $600 million to $1 billion, and to make corresponding amendments to paragraph 2 of the authorization for System foreign currency operations. As a result of these actions, which were effective August 12, 1971, paragraph 2 of the authoriza tion read as follows: 2. The Federal Open Market Committee directs the Federal Reserve Bank of New York to maintain reciprocal currency arrangements ("swap" arrangements) for System Open Market Account for periods up to a maximum of 12 months with the following foreign banks, which are among those designated by the Board of Governors of the Federal Reserve System under Section 214.5 of Regulation N, Relations with Foreign Banks and Bankers, and with the approval of the Committee to renew such arrangements on maturity: Amount of arrangement (millions of Foreign bank dollars equivalent) Austrian National Bank 200 National Bank of Belgium 600 Bank of Canada 1,000 National Bank of Denmark 200 Bank of England 2,000 Bank of France 1,000 German Federal Bank 1,000 Bank of Italy 1,250 Bank of Japan 1,000 Bank of Mexico 130 Netherlands Bank Bank of Norway 200 Bank of Sweden 250 Swiss National Bank 1,000 Bank for International Settlements: Dollars against Swiss francs 600 Dollars against authorized European currencies other than Swiss francs 1,000

Votes for ratification of these actions: Messrs. Burns, Hayes, Brimmer, Clay, Daane, Kimbrel, Maisel, Mayo, Mitchell, Morris, Robertson, and Sherrill. Votes against ratification of these actions: None. These actions had been recommended by the Special Manager after consultation with the Treasury Department. The Special Manager had advised that the swap line increases in question should prove helpful in avoiding further immediate drains on U.S. reserve assets.