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Views and Comment

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
September 1964
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Annual Report of the Deutsche Bundesbank for 1963

“It has become clear that the world’s present liquidity reserves, regarded as a whole and purely in terms of amount, are anything but insufficient in their composition, [although] they do not always meet requirements …. At all events it has been made clear that investigations by the Group of Ten are not to be concentrated on proposing ways and means to remedy any present shortage of international liquidity, but are rather to deal with the longer-term prospects. It is evident that in the longer run, particularly if the American balance of payments deficit were to disappear… problems connected with the supply of international reserves might arise. It seems appropriate that measures to cope with this difficulty are taken in advance, provided that they do not enhance the danger of inflation for the present.

“Other problems, the solution of which might materially contribute towards greater stability in the existing monetary system, seem at the present time more urgent. It has become apparent that a monetary system in which the exchange rate relationships between the leading countries are to be kept in principle stable can in the long run work only if there is close coordination of monetary and economic policy as between those countries …. To arrive at internationally agreed ‘rules,’ equally meeting the needs of internal and external equilibrium, would certainly be desirable. But it also seems important to solve some problems raised by the latest development of the gold exchange standard. There is the question how, with an increase in the indebtedness of the reserve currency countries, a run on the reserve currencies or slow undermining of the gold exchange standard through gradual raising of the gold proportion in total monetary reserves can be prevented. Another question is how the future supplying of the world with monetary reserves can be divorced from chance ups and downs in the balance of payments of one reserve currency. Important as it is to solve these various problems, the present monetary system is firm enough to permit an orderly and unhurried approach to their solution.”

Pierre-Paul Schweitzer, Managing Director of the Fund, in an address to the New York Chamber of Commerce, May 5, 1964

“Although arrangements for the provision of liquidity have been adequate in the immediate past, there is every reason to study carefully the prospects for the future. Gold production can reasonably be expected to provide an addition to official gold and foreign exchange reserves of perhaps at most 1½ per cent per annum, an increase well below the potential for growth of world trade…. Accumulation of adequate reserves is contingent on continuous balance of payments surpluses which is not within the means of all countries, so owned reserves will to some extent have to be supplemented by borrowing…. The growing level of foreign debt in the developing countries has added to their need for reserves. Above all, the relative reduction in the dominance of the United States in the world economy since the re-emergence of the economic strength of the principal European nations has added to the need for liquidity.

“For these and other similar reasons, I am sure we will have to make provisions for increasing liquidity in the future through international cooperation…. I would look forward not to drastic change but rather to continued innovation along the lines presently followed. Gold production and, to some extent, a further expansion in the holdings of reserve currencies will provide a major part of the necessary liquidity. But, in addition, a growing role will undoubtedly be played by an expanding International Monetary Fund. Under present procedures the most direct way to increase the role of the Fund would be through an increase of quotas by the member countries. In this step the member countries, by supplying an increased amount of their own currencies to the Fund, would provide an increased pool of reserves available to all members in accordance with the general principles which have been evolved. In general, these principles provide that a member has assured access to the resources when it is following policies that will ensure that its payments problems are shortlived. In this way the Fund preserves a revolving fund available to those in need of its assistance.

“The ways in which the Fund might contribute to the solutions of these problems is, of course, by no means limited to this possibility. The techniques of consultation through which the Fund can make clear in advance the actual availability of resources are being studied in order to perfect them. In this connection it should be realized that many countries have confined their use of the Fund’s resources to times of crisis. It is essential, if the creation of extra liquidity is to be effective, that resort to the Fund become a normal method of dealing with swings in the balance of payments. In addition to these extensions of existing Fund practices, consideration is being given to the possible value of more far-reaching innovations, such as the acceptance by the Fund of deposits and the introduction of investments at the initiative of the Fund…. We have time to achieve a deeper understanding of the direction in which we should move and yet still to take action in advance of any need that may arise.”

Robert V. Roosa, United States Under Secretary of the Treasury, in an address to the 11th Annual International Monetary Conference of the American Bankers Association, Vienna, Austria, May 21, 1964

“The problem lying directly ahead of us may not necessarily involve a need for more dollars, nor for the immediate creation of another international money to supplement them, but it may instead call for greater use of credit facilities and the international money substitutes that are created as such credit facilities are utilized…. Countries would increasingly come to regard their primary reserve assets as a base upon which credit—in many different forms—might be granted or received…. We need not view the possible emergence of greater reliance upon a credit element in international liquidity as a weakness in our system. Instead it may be a positive advantage—a flexible means of creating liquidity at the times and at the points where it is needed, but a means also of preventing maladjustments from going too far and of encouraging the timely adoption of necessary policies to restore equilibrium…. We need liquidity so that economic ills can be cured without the use of shock treatment. We do not need, and cannot successfully use, liquidity to avoid the necessity of a cure.

“I expect that the months and years ahead will see more of a reappraisal and rediscovery of the dimensions and potentials of the International Monetary Fund for our payments system and as a center of international liquidity…. In addition, room has been found outside the Fund for other bilateral and multilateral facilities as well—supplementing and reinforcing, but in no way supplanting, the central role of the Fund itself…. All countries, and particularly the reserve countries, have not only a mutual interest but also a shared responsibility in the maintenance of an adequate and stable international monetary system.”

Dr. M. W. Holtrop, Chairman of the Board of Directors of the Bank for International Settlements, in an address to the Annual General Meeting of the Bank in Basle, Switzerland, June 8, 1964.

“There has been a definite movement towards equilibrium as between the broad regions of Western Europe and North America. This progress has been partly clouded by other developments, notably the emergence of a large imbalance within Western Europe itself, giving rise to difficult problems. In addition, Europe has continued to gain reserves on a large scale in spite of its now sizable deficit on current account. A substantial part of the inflow of capital leading to this result appears to have come from developing countries—an undesirable and disturbing feature from every point of view….

“Cooperation among central banks and governments has continued to yield valuable results in the management of the international monetary system…. Both the favorable developments of the past year and the new difficulties that have arisen support the view that there is no urgent need for general increases in international liquidity. The fact must not be lost sight of that greater ease of access to international monetary credit, while adding to the certainty that no disruptive adaptations in the processes of international adjustment need be feared, may at the same time weaken the resolve to adapt internal policies to the exigencies of external equilibrium. The essential task for all countries is still to ensure that their continued economic expansion takes place in a climate of domestic stability and international balance.”

Thirty-Fourth Annual Report of the Bank for International Settlements, June 8, 1964

“While it is difficult to anticipate the longer-term evolution of the [international monetary] system, recent experience has highlighted two important points; one is that cooperation among the monetary authorities can contribute substantially to maintaining orderly conditions on the exchange markets; the other is that the disturbances that arise from inflation cannot be resolved by illusions about liquidity creation but only by acting on inflation itself.”

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