December 20–21, 1976 FOMC Record of Policy Actions

FOMC minutes

12/20-21/1976 -29- The Federal Open Market Committee authorizes the Reserve Bank of New York to maintain an over-all Federal open position in foreign currencies exceeding the figure of specified in paragraph 1(D) of the Authorization for $1.0 billion Foreign Currency Operations by an amount equal to the remaining forward commitments associated with the System's outstanding 1971 swap drawings in Swiss francs. Votes for these actions: Messrs. Burns, Volcker, Balles, Black, Coldwell, Gardner, Jackson, Kimbrel, Lilly, Partee, Wallich, and Winn. Votes against these actions: None. The Committee also agreed upon certain procedural instructions. These were intended to clarify the respective roles of the Committee, the Foreign Currency Subcommittee designated in paragraph 6 of the Authorization, and the Chairman in providing guidance to the Manager of the System Open Market Account with respect to proposed or ongoing foreign currency operations under the Authorization and Directive. These instructions read as follows: PROCEDURAL INSTRUCTIONS In conducting operations pursuant to the authorization and direction of the Federal Open Market Committee as set forth in the Authorization for Foreign Currency Operations the Foreign Currency Directive, the Federal Reserve and York, through the Manager of the System Open Bank of New Account, shall be guided by the following procedural Market with respect to consultations and clearance understandings with the Committee, the Foreign Currency Subcommittee, Chairman of the Committee. All operations and the to such clearances shall be reported undertaken pursuant promptly to the Committee.

12/20-21/76 -30- shall clear with the Subcommittee (or with 1. The Manager if the Chairman believes that consultation the Chairman, with the Subcommittee is not feasible in the time available): A. Any transaction which would result in a change in the System's over-all open position in foreign currencies exceeding $100 million on any day or $300 million since the most recent regular meeting of the Committee. B. Any transaction which would result in gross transactions (excluding swap drawings and repayments) in a single foreign currency exceeding $100 million on any day or $300 million since the most recent regular meeting of the Committee. C. Any swap drawing proposed by a foreign bank not exceeding the larger of (i) $200 million or (ii) 15 per cent of the size of the swap arrangement. 2. The Manager shall clear with the Committee (or with the Subcommittee, if the Subcommittee believes that consultation with the full Committee is not feasible in the time available, or with the Chairman, if the Chairman believes that consultation with the Subcommittee is not feasible in the time available): A. Any transaction which would result in a change in the System's over-all open position in foreign currencies exceeding $500 million since the most recent regular meeting of the Committee. B. Any swap drawing proposed by a foreign bank exceeding the larger of (i) $200 million or (ii) 15 per cent of the size of the swap arrangement. 3. The Manager shall also consult with the Subcommittee or the Chairman about proposed swap drawings by the System, and about any transactions that are not of a routine character. Votes for this action: Messrs. Burns, Volcker, Balles, Black, Gardner, Jackson, Kimbrel, Lilly, Partee, Wallich, and Winn. Vote against this action: Mr. Coldwell.

12/20-21/76 from this action, Mr. Coldwell noted that In dissenting 2 reserved to the full Committee the power to approve paragraph by the System and swap drawings by foreign market transactions exceeding specified figures. However, that language central banks was qualified by a parenthetical statement (similar to a statement 1) indicating that such transactions could be approved in paragraph the Subcommittee or the Chairman under particular circumstances, by relating to the availability of time. Mr. Coldwell would have preferred language indicating that such power--which extended to operations up to the limits permitted by the Authorization--was reserved to the full Committee except under circumstances of extreme emergency. The foregoing actions were effective December 26, 1976. 3. Authorization for domestic open market operations Paragraph 2 of the authorization for domestic open market operations authorizes the Federal Reserve Bank of New York (and, under certain circumstances, other Reserve Banks) to purchase short-term certificates of indebtedness directly from the Treasury, subject to certain conditions. This authorization is, in turn, based on a provision of Section 14 (b) of the Federal Reserve Act authorizing the Federal Reserve Banks sell obligations of specified types "directly from or to to buy and

12/20-21/76 -32- the United States, " subject to certain conditions. It was noted at this meeting that, because the statutory authority in question had expired on November 1, 1976, paragraph 2 of the authorization had been in a state of de facto suspension since then, and that the paragraph would remain in suspension until the enactment of expected legislation extending the authority.