the basis of gloves valued in France on the basis of 100 francs to the dollar, if by fiat the franc was 200 to the dollar tomorrow, that would make it half as cheap?

Mr. WHITE. That would make it half as cheap.

The CHAIRMAN. Exactly. So, until the thing caught up with him, he would buy twice as many gloves?

Mr. WHITE. Rather the gloves would be half as expensive to the American importer.

The CHAIRMAN. He could buy twice as many or with the same amount he would only pay half as many dollars.

Mr. WHITE. That is right, though actually the price in francs under such conditions would not remain the same.

The CHAIRMAN. Until the lag caught up with him some place.
Mr. WHITE. To a large extent.

The CHAIRMAN. The reverse English is true from the standpoint of the French exporter of the gloves?

Mr. WHITE. Precisely. Should the change of the exchange rate be in the other direction, where instead of buying 100 francs for his dollar he could get only 50, the gloves would tend to be twice as expensive, and he would divert his purchase, if he had any alternative, either to home products, or to Czechoslovakia or somewhere.

The CHAIRMAN. And on that simple illustration, it appears to me you might accomplish the same thing by either a radical increase of tariffs or a radical reduction in tariffs.

Mr. WHITE. In part.

The CHAIRMAN. Yes.

Mr. WHITE. We could make the gloves more expensive in the United States by raising our tariffs.

The CHAIRMAN. That is right.

Mr. WHITE. French tariff action would have no direct affect on the price of French gloves to us, though, but they might have an indirect effect.

The CHAIRMAN. In other words, the American purchaser of gloves might find himself in the same end net position as the result of tariff manipulation as from the result of exchange variations.

Mr. WHITE. That is right, sir, except that I think the tariff changes would have to be American tariff changes rather than French.

The CHAIRMAN. Doctor, give us some kind of a résumé of the operations of the fund since it became established.

Mr. WHITE. I will do that, though there are some other areas in which the fund can influence the trade of a member country. Shall I continue?

The CHAIRMAN. Please go ahead.

Mr. WHITE. I refer to the extent to which countries by exchange restrictions on imports can change the pattern and volume of their trade. In other words, the general principle is that there shall be no exchange restrictions placed on imports, but important exceptions are provided in the fund agreement.

For example, if an importer in a certain country wanted to import sulfates and could not get the necessary foreign exchange because his government said, "We do not feel that we have enough foreign exchange to give you for that purpose," the country would not be violating the fund agreement provided it was restricting imports under authority of a certain provision applying to transition periods.

The transition period is supposed to cover several years, to allow for the transition from the war situation to what is hoped will be a stable peace situation.

A country can therefore decide not to give an importer foreign exchange that he requests, and that still would not be a violation of the articles of agreement under certain conditions.

They are permitted even, under certain cases, to give an importer exchange for purchasing, say, corn from country X. But not if he purchases it from country Y.

The CHAIRMAN. They might say, without attempting to favor one country as against another, "We have a lot of sterling on hand, and we don't have a lot of dollars. Hence, we suggest to you that you channel your trade into sterling for the time being."

Mr. WHITE. Precisely.

The CHAIRMAN. Without having a desire to favor one country's trade as against another. That could be?

Mr. WHITE. Precisely.

The CHAIRMAN. On the other hand, it could represent a desire to favor one country's trade as against another.

Mr. WHITE. Exactly. And there are provisions which are designed to protect members against that kind of discrimination. If it is the first reason that applies, that is, that they have sterling but do not have dollars, they are wholly within their rights during this transition period to pursue a policy of rationing their foreign exchange as you have described it.

Now, in the ITO, they have provisions designed to provide the same safeguard and the same exceptions in the use of direct controls on imports as the Fund agreement provides in the use of controls over foreign exchange.

However, as now drafted, there is some discrepancy in the Fund and ITO as to the time covered by the period of exceptions. Possibly that will be ironed out in later drafts, or they may succeed in the ITŎ agreement to more clearly define or to shorten what in the Fund agreement is called the transition period.

That is, then, another area in which the Fund has some measure of control over the foreign trade of a member country, because there are certain general principles enunciated in the Fund agreement which makes it possible for the Fund authorities to say to a country, that "It appears to us that these restrictions which you are applying are not now necessary, though they may have been necessary up to now. We believe that you should diminish them."

If the country is unable to agree with the Fund authorities, then there are certain possible penalties that follow.

Then there is a provision in which the Fund itself, as you remember, may deem it necessary to declare a particular currency scarce. The CHAIRMAN. Yes.

Mr. WHITE. In which case, the members of the Fund are relieved of certain requirements and are authorized to impose restrictions which they otherwise would not be permitted to use.

The CHAIRMAN. Doctor, may I interject at that point?

Mr. WHITE. By all means.

The CHAIRMAN. The reason you declare a currency scarce is because there has been more demand for it than there is supply, and that is

because there has been an undue amount of importation calling for payment in that particular currency; is that not correct?

Mr. WHITE. Well, I am just hesitating on the word "undue." Let us say there has been so much demand for the products of that country, or for payments to be made to that country, relative to the supply of foreign exchange, that they are beginning to draw on the Fund. If that becomes widespread, then the aggregate demand would reduce the amount of that particular currency held by the Fund. The Fund's holdings of that currency and gold may decline to a point at which there may not be enough to satisfy all legitimate requests, and the Fund may therefore have to begin to ration it.

The CHAIRMAN. So there ultimately comes a rationing of the exports of that particular country?

Mr. WHITE. I should not think so, though a country might decide to do so. I doubt very much whether the United States would ever reach the point of rationing United States exports for that reason. The CHAIRMAN. I was thinking of the United States, but was not mentioning it.

Mr. WHITE. Well, any country.

The CHAIRMAN. Any country.

Mr. WHITE. The change that would be advocated in many quarters abroad is rather that the country whose currency is getting scarce should purchase more goods, and thereby provide more foreign exchange to other countries.

The CHAIRMAN. Or it might be to loan more money to purchasing countries?

Mr. WHITE. That would be another way of supplying the necessary foreign exchange.

The CHAIRMAN. Or to make more foreign investment?

Mr. WHITE. That would be a third way.

The CHAIRMAN. Yes.

Mr. WHITE. There has been a tendency, especially abroad, to assume much too easily that the existence of a shortage of currency is always the fault of the country whose currency is getting scarce. Now, that is not true.

The CHAIRMAN. No.

Mr. WHITE. Scarcity of a certain currency may be due to the fact that other countries are living, we might say, beyond their means, that they are importing too much. Too many persons have taken the position that if we in the United States have a favorable balance of payments, it is always because we are not buying enough.

Well, that may be the case, or it may be that other countries are buying too much. One would have to examine each situation before one would be warranted in coming to a conclusion whether corrective steps had to be taken in the country whose currency was getting scarce, or in the countries who were demanding too much of the currency, or in both.

The CHAIRMAN. But a case is conceivable where, after you have exhausted the loan possibility, the investment possibility, and the increase of importation possibility, of the scarce currency country, that the remedy, if one exists, would be to take less of the goods of that particular country?

Mr. WHITE. Quite so, and you might reach that conclusion even before you have exhausted those possibilities, because it is not at all

unusual for a country to sometimes import more goods than it is warranted in importing.

The CHAIRMAN. I develop that facet of the question because it has a rather close relation to direct controls on import and export goods. Mr. WHITE. Yes. Well, I will merely touch on a broader aspect. There are certain general purposes of the Fund enumerated in the article 1 of the Fund agreement, which are fairly broad; for example, to promote stability of exchange, to provide assistance to countries whose balance of payments are in need of short-term assistance in order that they will be able to pursue a policy not harmful to other countries in correcting their balance of payments. There are several others, and the Fund can, through consultation and through exercise of some of its powers, examine many of the basic aspects of a country's economy, to see if, where desirable, the Fund and member can work out jointly, or agree jointly on proposals designed to correct a bad situation.

If it is a basic maladjustment, to take certain basic measures; if temporary to adopt other measures.

That is a broad area in which the Fund can, through consultation, influence the balance of payments of any given country.

The CHAIRMAN. The Bank might have some assisting influence? Mr. WHITE. Yes.

The CHAIRMAN. In that kind of situation?

Mr. WHITE. Oh, yes, sir. And the Bank and the Fund were designed to collaborate closely on some aspects of that problem. The CHAIRMAN. Have you finished?

Mr. WHITE. I am sure there are other items, but possibly that is enough to give you an idea of the main avenues through which the Fund may influence the economies of member countries.

The CHAIRMAN. Earlier in the hearing, we introduced into the record a list of perhaps 75 or more countries that maintain import restrictions, and where exchange permits are required.

Mr. WHITE. That is true. Most countries of the world do have restrictions, either import restrictions or restrictions on foreign exchange, and I think it is probably correct to say that most countries have both.

The CHAIRMAN. I think it was developed that we probably have less restrictions than any other country. (For general reference see Exhibit XIX.)

Mr. WHITE. We have a few, but I think there are two or three other countries that do not have as many restrictions as we have.

The CHAIRMAN. Then, let me ask you, Doctor: Now, what progress has the Fund made in breaking down those restrictions?

Mr. WHITE. The restrictions which exist now are chiefly restrictions which the articles of agreement permit those countries to maintain.

The CHAIRMAN. The restrictions which do exist, so far as these countries which are members of the Fund are concerned, exist by virtue of permission?

Mr. WHITE. Yes, sir; but might I add, not necessarily all. We are now proceeding to an examination of many of those restrictions to make certain, as best we can, that they do not violate the provisions dealing with discrimination. We are also undertaking discussions with a number of the member countries looking forward to changing

some of the practices they permit which are felt not to be necessary. The CHAIRMAN. But most of these restrictions were in existence when the Fund came into existence?

Mr. WHITE. Yes, they almost all were; yes.

The CHAIRMAN. Please give us some idea of what effectiveness the Fund has had in eliminating or in rendering those restrictions more nondiscriminatory.

Mr. WHITE. Almost none, Senator. We have just undertaken the task of discussing with countries, some aspects of their policies that we think may lead to discrimination, or undue restrictions. We are just beginning that process; it will take a long time. If I had to give a short answer to your question, it would be that so far very little has been done as yet by the Fund about discrimination.

The CHAIRMAN. Doctor, when we had the Fund agreement up, as I recall it, we had a lot of discussion about bilateral agreements which were not considered healthy, so far as expansion of world trade is concerned. (Exhibit X.)

This record contains a history of a very substantial burgeoning of that same type of agreement by some of the countries in the Fund. Can you tell us about that?

Mr. WHITE. Yes. But much of the discussion of the Fund powers in that connection, and the expectation as to what the Fund might accomplish related to the normal long-run post-adjustment period.

We are now in the midst of a transition period. There is a provision that, during the transition period, it is permissible-because there is no better feasible alternative-for member countries-to pursue policies and practices which would not be either desirable or permissible after the end of the transition period.

Bilateral arrangements were not among those practices unless they took certain forms, such as offering an accumulated stock of exchange at a lower rate than what we would call the official rate. That was the sort of practice that Germany and Japan pursued in the thirties. The CHAIRMAN. A preferential goods arrangement might come to the same effect, might it not?

Mr. WHITE. It would be difficult, unless there were state trading or a good deal of state control. It would be pretty difficult, though not impossible, where you have private trading.

The CHAIRMAN. The State Department has made formal protest, for example, against an agreement of that kind, which Argentina has entered into with Great Britain. (Exhibit X, F 5.) I understood also that the State Department is viewing with interest, and perhaps with concern, the agreement which Sweden has made with Russia (Exhibit X, F 3), and possibly an agreement between Russia and Switzerland. Generally, what aspects of that have come under your eye, or have any of the aspects come under your eye?

Mr. WHITE. If we are thinking of the same agreement between Argentina and England, the objection referred to a violation of one of the provisions contained in our financial agreement with England The CHAIRMAN. I may be very wrong on this, but as I recall it, it also involved an alleged violation of one of the provisions of our trade agreements.

Mr. WHITE. That may be, and I am not familiar with that, Senator. The CHAIRMAN. The British defense, as I recall it, was sort of a confession and avoidance. It said, "So far, this has not injured any