Foreign Relations of the United States, 1951, National Security Affairs; Foreign Economic Policy, Volume I

NAC Files, Lot 60 D 137

Draft of Minutes of Meeting No. 185 of the National Advisory Council, Washington, October 30, 1951

Washington, October 30, 1951

secret

[Participants:]	Secretary John W. Snyder (Chairman), Treasury Department
	Mr. Willard L. Thorp, State Department
	Mr. Alexander M. Rosenson, State Department
	Mr. R. C. Miller, Commerce Department
	Mr. William McC. Martin, Jr., Board of Governors, Federal Reserve System
	Mr. Arthur Marget, Board of Governors, Federal Reserve System
	Mr. Herbert E. Gaston, Export–Import Bank
	Mr. Bernard Bell, Export–Import Bank
	Mr. C. Tyler Wood, Economic Cooperation Administration
	Mr. Melville E. Locker, Economic Cooperation Administration
	Mr. Frank A. Southard, Jr., International Monetary Fund
	Mr. John S. Hooker, International Bank
	Mr. Thomas J. Lynch, Treasury Department
	Mr. George H. Willis (Acting Secretary)
	Mr. Allan J. Fisher (Assistant Secretary)

[Here follows discussion of prior agenda items.]

3. Use of the Fund’s Resources

Mr. Willis said that this matter had been brought up for discussion by the Council at the suggestion of the United States Executive Director. The Managing Director of the Fund had two general approaches to some wider use of the facilities of the Fund by members. The first of these would provide a rather simple procedure for allowing drawings by countries of an amount equal to the gold and dollars they had contributed to the Fund. Technically this meant that countries, the holding of whose currencies by the Fund was less than 100 percent of quotas, would be in a position to draw. An applicant country would approach the Managing Director and he would either inform the Board, if it were a small drawing of 5 percent or less, or if the amount were larger would discuss the matter with the Board. It would be generally understood countries would have fairly good reason to expect approval if they fell within this category and were drawing to an amount not in excess of their contribution of gold and dollars. Some acceptable understanding respecting repurchase would be reached. It was felt there were some advantages to this arrangement and that a number of countries might be favorably disposed to it. The Managing Director expected to discuss the proposal thoroughly with the Fund Board as well as abroad before any conclusion was reached in the Fund.

The second proposal related to very short-term drawings of perhaps 6 to 18 months on a distinctly discretionary basis. The Fund would review each case and these very short-term drawings would be accompanied by special repurchase undertakings by the member countries (NAC Document No. 1208).¹

Mr. Martin observed that these proposals seemed to meet the requirement that the Fund have some control over its resources, and to put the Fund into the short-term lending business in a satisfactory way. Mr. Thorp agreed that it would constitute a very good move. The Chairman added that he thought it would go a long way toward meeting some of the objections raised in informal discussions at the Annual Meetings of the Fund’s Board of Governors.

Mr. Gaston commented, with respect to the proposal for short-term drawings to cover seasonal contingencies, that it would be well to see that such drawings were considered from the standpoint of the foreign exchange expectancies of foreign countries and their normal imports, so that the funds would not be used to finance abnormal imports.

Mr. Southard said that it would be most helpful if the Council would agree to his support of the proposal. The discussion in the Fund would probably last for several months and he would report back either to the Staff Committee or the Council as the proposal became firmer. He added that in order to get agreement on a firm repurchase policy respecting drawings in excess of 100 percent of the Fund’s holdings of a member’s currency it might be necessary not to insist on a firm repurchase agreement with respect to drawings not exceeding the gold tranche. There was a legal basis upon which the distinction might be placed, since these drawings would not be subject to interest charges but only to the transaction charge. The Executive Directors might resist putting these drawings on the same basis of repayment as drawings subject to interest charges. The Managing Director preferred a firm repurchase obligation even for these drawings and Mr. Southard said that it would also be his preference. However, this might be the point of profitable compromise. He thought we might take a chance and rely on the automatic repurchase mechanism, since the sterling area countries, where the provision does not operate, have with one or two minor exceptions used up the gold tranche of their quota. Mr. Southard repeated that he would come back to the Council for further consultation before he would agree to such a compromise.

The Chairman suggested that it might be a proper procedure, if the Council saw fit to place responsibility on the United States Executive Director to work out the initial phases of the proposal, to evidence an open-minded view on the matter without a direct commitment. He thought this would be the most appropriate approach so that the United States would not jeopardize its trading position.

Mr. Thorp said that he assumed Mr. Southard would be expected to take an active part in the discussion and to indicate United States support of this type of program. He gathered the Chairman’s comments meant that he should not be committed as to details. The Chairman agreed and said that he thought that Mr. Southard’s approach should be to support the proposals but not to commit himself on details at this time. There was general agreement on this suggestion.

Attachment

Comparison of Present and Proposed Schedules

	Present				Proposed
Period	1/0–25%	2/25–50%	3/50–75%	4/75–100%	1/0–25%	2/25–50%	3/50–75%	4/75–100%
0–3 months	0	1	1½	2	0	1	1½	2
3–6	½	1	1½	2	0	1	1½	2
6–12	½	1	1½	2	1	1½	2	2½
1–1½ yrs.	1	1½	2	2½	1½	2	2½	3
1½–2	1	1½	2	2½	2	2½	3	3½*
2–2½	1½	2	2½	3	2½	3	3½*	4‡
2½–3	1½	2	2½	3	3	3½*	4‡
3–3½	2	2½	3	3½	3½*	4‡
3½–4	2	2½	3	3½	4‡
4–5	2½	3	3½	4*
5–6	3	3½	4*	4½
6–7	3½	4*	4½	5†
7–8	4*	4½	5†
8–9	4½	5†
9–10	5†

1. Supra.
2. At this point the Fund is obligated to consult with the member on means to reduce the Fund’s holdings of the member’s currency. [Footnote in the source text.]
3. At this point the Fund is obligated to consult with the member on means to reduce the Fund’s holdings of the member’s currency. [Footnote in the source text.]
4. If the Fund decides to raise the interest rate, it may do so only to 4½ per cent for one semi-annual period and 5 per cent for a second semi-annual period. Thereafter the Fund may levy any changes it regards appropriate. [Footnote in the source text.]
5. At this point the Fund is obligated to consult with the member on means to reduce the Fund’s holdings of the member’s currency. [Footnote in the source text.]
6. If the Fund decides to raise the interest rate, it may do so only to 4½ per cent for one semi-annual period and 5 per cent for a second semi-annual period. Thereafter the Fund may levy any changes it regards appropriate. [Footnote in the source text.]
7. At this point the Fund is obligated to consult with the member on means to reduce the Fund’s holdings of the member’s currency. [Footnote in the source text.]
8. If the Fund decides to raise the interest rate, it may do so only to 4½ per cent for one semi-annual period and 5 per cent for a second semi-annual period. Thereafter the Fund may levy any changes it regards appropriate. [Footnote in the source text.]
9. If the Fund decides to raise the interest rate, it may do so only to 4½ per cent for one semi-annual period and 5 per cent for a second semi-annual period. Thereafter the Fund may levy any changes it regards appropriate. [Footnote in the source text.]
10. At this point the Fund is obligated to consult with the member on means to reduce the Fund’s holdings of the member’s currency. [Footnote in the source text.]
11. At this point the Fund is obligated to consult with the member on means to reduce the Fund’s holdings of the member’s currency. [Footnote in the source text.]
12. At this point the Fund is obligated to consult with the member on means to reduce the Fund’s holdings of the member’s currency. [Footnote in the source text.]
13. Thereafter subject to such charges as the Fund regards appropriate. [Footnote in the source text.]
14. At this point the Fund is obligated to consult with the member on means to reduce the Fund’s holdings of the member’s currency. [Footnote in the source text.]
15. Thereafter subject to such charges as the Fund regards appropriate. [Footnote in the source text.]
16. Thereafter subject to such charges as the Fund regards appropriate. [Footnote in the source text.]
17. Thereafter subject to such charges as the Fund regards appropriate. [Footnote in the source text.]