60. Memorandum From the U.S. Member of the Board of Executive Directors of the International Monetary Fund (Southard) to the Secretary of the National Advisory Council on International Monetary and Financial Problems (Galbreath)0

NAC Document 60337


  • Increase in Investment of Fund’s Assets
The Managing Director of the Fund has informed me that he intends to propose to the Executive Board of the Fund that the size of the Fund’s investment in U.S. securities be increased from $500 million to $800 million, gold being sold to obtain the funds to be invested.
In my memorandum of July 15, 1959,1 in which I communicated the proposal of the Fund Management to increase the Fund’s investment from $200 million to $500 million, I summarized the history of the Fund’s investment program, which was begun in 1956. I cited my memorandum to the NAC of November 8, 1955,2 which summarized the various policy and legal questions, and NAC Decision No. 845 of December 23, 1955, which, inter alia, authorized me to concur in an interpretation of the Articles of Agreement to the effect that the Articles permit sales of gold for the purpose of investment of the proceeds and that the obligation to maintain the gold value of the Fund’s assets set forth in Article IV, Section 8, of the Articles of Agreement would be applicable to such investment. NAC Action 59–178, July 23, 1959, authorized me to concur in the sale to the [Page 141] United States of an additional $300 million of the Fund’s gold, and also approved the necessary action by the Secretary of the Treasury and the U.S. Treasury to carry out the transaction.
The Managing Director continues to feel that the Special Reserve of the Fund should be built up substantially and he is not satisfied that the present investment of $500 million is achieving this objective at a sufficiently rapid rate. He argues that at a time when certain risks are rising and when the Fund’s income is falling, the combined Special and General Reserves should be increased as rapidly as practicable to as much as $200 million. At the end of the last fiscal year, April 30, 1960, the Special Reserve amounted to $22.3 million and the General Reserve to $39.8 million, or a total of $62 million. The proceeds from investment in U.S. Treasury securities accrue to the Special Reserve, and net earnings from operations are placed in the General Reserve.
I am in agreement with the views of the Managing Director and I recommend that I be authorized to support his recommendation that the investment be increased by $300 million.
If the NAC approves my support of the proposed increase in the investment of the Fund’s assets it would be necessary also to approve an undertaking by the U.S. Treasury to resell to the Fund the same amount of gold, and also to approve a recommendation by the Secretary of the Treasury that the President approve the elimination by the U.S. Treasury of the one-fourth of one per cent charge on gold sold to or purchased from the United States in connection with such investment.
The Managing Director hopes to bring this matter before the Executive Board during the week of November 21, and I shall accordingly need the advice of the NAC as soon as possible.3
  1. Source: National Archives and Records Administration, RG 56, Records of the Department of the Treasury, NAC Documents. Official Use Only; For NAC Use Only.
  2. NAC Document 59–191. (Ibid.)
  3. NAC Document 1878, dated December 8, 1955. (Ibid.)
  4. In Action 60–301, taken by telephone poll and dated November 25, the Council approved Southard’s support of the proposed increase and the steps he outlined in paragraph 5. (Ibid., NAC Actions)