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Mr. WHITE. But the existence of a black market in itself need not be evidence of a wrong value. It may be evidence that people have no confidence in that particular currency for political reasons, and want to get their money out. They may think the country is swinging over to socialism, or is going to confiscate, or they may fear civil disturbance.

The CHAIRMAN. That is right.

Mr. WHITE. And under those circumstances, the relative value in terms of international trade, may bear little resemblance to what these individuals may be willing to pay for foreign exchange.

On the other hand, in some currencies there is also frequently a view held by some that the rate of exchange will not persist and therefore people speculate in foreign exchange.

The CHAIRMAN. Might it not go to the confidence of the people in the official parity?

Mr. WHITE. Very definitely.

The CHAIRMAN. You have black-market transactions which involve a different parity than the official parity. Ultimately, the people will commence to wonder about the official parity, and that might set up a red lantern calling for a reappraisal.

Mr. WHITE. Quite so. If it becomes fairly broad. That is one of the disadvantages of the black market.

On the other hand, you have black markets that result from different causes. Let me give you a specific case: Country X, which I am familiar with, has a restriction on exchange for the importation of high-priced cars. Individuals cannot buy foreign exchange for that purpose. They do have a black market which is fed by tourists dollars, or by other individuals who have dollars.

In these countries there are always some who want high-priced cars, they will go to the market, and they are willing to pay premiums of even 100 or 150 percent if necessary. In order to get the foreign exchange with which to import a luxury, which the government feels the people should not utilize at the time when the foreign exchange is limited, a high premium of that character may be a reflection not of any unreal value, but a reflection of the high degree of efficiency on the part of the country in curtailing the black market, so that there is not very much foreign exchange there for anybody to buy at unofficial rates.

The CHAIRMAN. It also reflects a very extraordinary demand abroad for high-priced cars.

Mr. WHITE. Yes, which in turn may be a reflection of inflation in that country

The CHAIRMAN. The kind of situation I had in mind was where there is a very general and widespread black market covering all kinds of transactions.

Mr. WHITE. Yes.

The CHAIRMAN. Which represents a serious deviation from the official rate.

Mr. WHITE. That would be another case.

The CHAIRMAN. Where that prevails, that might ultimately compel the country to reappraise its own official parity.

Mr. White. It might do that. It also-might be merely a reflection of other conditions.

The CHAIRMAN. How have the countries that have joined the fund made up their quotas in terms of the kind of stuff that they have put up?

As I recall it, there was a little leeway. You could put up so much gold or you could do something else. What was that?

Mr. WHITE. Some gold and the remainder local currency. In fact, they could go further than that, for the larger part of their local currency, they may substitute their government obligations.

The CHAIRMAN. Was there not a minimum of gold?
Mr. WHITE. There was.
The CHAIRMAN. What was that minimum?
Mr. WHITE. That minimum was 25 percent of their quota.
The CHAIRMAN. Yes.

Mr. WHITE. Or 10 percent of their net gold holdings and dollar exchange.

The CHAIRMAN. Whichever was less?
Mr. WHITE. Whichever was less.
The CHAIRMAN. Yes. How have they met their quotas?

Mr. WHITE. I have a list here. If you are interested in the particular countries, and I can give you the aggregate.

The CHAIRMAN. I would like now to have the aggregate, but if you can let me have the list, the committee will then determine whether it should be put in as an annexure to the hearings. It might be interesting to have it in the hearings.

Mr. WHITE. Then, with your permission, I would like to ascertain whether these can be made available.

They will be made available in the future with a lag.
The CHAIRMAN. Give me the figures on the aggregate basis.

Mr. WHITE. I have got the figures but the totals are not here, and I think we can get those in a moment.

The CHAIRMAN. All right.

Mr. WHITE. Many of the countries, of course, took the 25 percent, as did the United States, because it was less than the 10 percent of our gold holdings, and many took the 10 percent because the 10 percent was the smaller.

England, for example, took the 10 percent. The figures are not final, because there are a number of items on which there is further study necessary.

The CHAIRMAN. What loans have the banks made?
Mr. WHITE. None, sir, to my knowledge.
The CHAIRMAN. None ?

Mr. WHITE. They are in the process of considering a number of them, and I am informed that the progress of several of them is far along.

The CHAIRMAN. Has the bank guaranteed any loans?
Mr. WHITE. No, sir.
The CHAIRMAN. Has the bank sold any of its securities?

Mr. WHITE. No, sir; it is now in the process of preparing a selling program.

The CHAIRMAN. We had quite a little discussion, as you will remember, at the time when we were considering the fund and the bank as to what would be an acceptable term limit for cyclical movement.

Mr. WHITE. Yes; I remember that, Senator.

The CHAIRMAN. As I recall it, we were instructed to take a certain position with reference to the type of loans which the banks should make.

Mr. WHITE. Yes, sir.

The CHAIRMAN. Can you make that a little sharper for the purpose of the record ?

Just what those instructions were.

Mr. WHITE. Yes; I would be glad to. You mean the instructions that the United States Congress asked the Governor of the fund, the United States Governor of the fund to follow?

The CHAIRMAN. Yes; he was to try to get a general consent to a definite policy.

Mr. WHITE. Yes. That was the understanding of the other members, because we were able to assure you only as to what was our own understanding

The CHAIRMAN. So, would you mind stating the two questions involved, and then tell us what, if anything, has come of any effort that was made to secure agreement?

Mr. WHITE. I will insert the exact words, which I have here, of the request

The CHAIRMAN. What is the capital of the fund?

Mr. WHITE. About $8,000,000,000 plus. There are some new members coming in.

The CHAIRMAN. Our participation was how much?
Mr. WHITE. $2,750,000,000.
The CHAIRMAN. What was the capital of the bank?

Mr. WHITE. About the same, and I think our participation was a little larger. I think it is $3,300,000,000.

The CHAIRMAN. Doctor, unless you have some further comments, we will close the session this morning, and I want to thank you for the very instructive information which you have given us.

Mr. WHITE. Thank you.
The CHAIRMAN. Thank you very much.
We will recess without date.
(Dr. White subsequently submitted the following memorandum :)

INTERNATIONAL MONETARY FUND,

Washington 6, D. C., April 10, 1947. Hon. EUGENE D. MILLIKIN, Committee on Finance,

United States Senate, Washington, D. C. DEAR SENATOR : Below is the summary information with respect to England's trade and the proportion of gold to local currency in the fund that you requested.

At the time of the United Kingdom United States financial agreement the United Kingdom stated that they needed to increase the volume of their exports by 75 percent over their 1938 exports to enable the United Kingdom to pay for the necessary imports out of current earnings of foreign exchange.

Last year total United Kingdom exports (including reexports) were £911,000,000 sterling as against £470,000,000 for the year 1938. By January of this year exports had increased still more, reaching the annual rate of £1,100 million sterling. In February, however, trade dropped, due partly to the fuel crisis and partly to the short month.

In terms of trade volume, however, the January figure was about 12 percent greater than it was for the comparable period in 1938. That was the figure also that you cited.

The United Kingdom's target for 1947 has been announced as being 40 percent greater than 1938 in terms of volume.

The total amount of gold and dollars held by the fund is approximately $3,375,-
000,000, and of other currencies about $3,125,000,000. This total is less than total
quotas of members of the fund ($7,530,000,000) largely because members are not
required to pay in their full subscriptions until they are ready to do business
with the fund. Before they do business with the fund they must agree with it
on par values for their currencies; and such agreement has not yet been reached
with all members.
Sincerely,

H. D. WHITE. (Thereupon, at 12:18 p. m. the hearing was adjourned.)

.

APPENDIX DRAFT OF CHARTER FOR AN INTERNATIONAL TRADE ORGANIZATION

PREPARED BY SUBCOMMITTEE OF THE PREPARATORY COMMITTEE MEETING AT LAKE SUCCESS, N. Y., JANUARY-FEBRUARY, 1947

[The "New York Draft"] TABLE OF CONTENTS Page

Page Introduction.. 641 Chapter V. General commercial policy.

645 Draft charter.

642 Chapter VI. Restrictive business practices. - 662 Chapter I. Purposes.

642 Chapter VII. Inter-governmental commodity Chapter II. Membership. 643 arrangements

664 Chapter III. Employment, effective demand Chapter VIII. Organization.

669 and economic activity.

643 Annexure A. List of territories referred to in Chapter IV, Economic development.

644 sub-paragraph (2) (a) (ii) of Article 14.----- 676

INTRODUCTION

1. At its First Session' held in London in October and November 1946, the Preparatory Committee adopted a resolution establishing a Drafting Committee. The resolution, after stating that it was desirable that further drafting be done on the basis of the work carried out at the First Session of the Preparatory Committee and before the commencement of the Second Session, directed the Drafting Committee, composed of representatives of the members of the Preparatory Committee, to meet in New York from 20 January 1947 and to complete its preparation of a report for consideration at the Second Session no later than 28 February 1947. It was resolved that it would be the function of the Drafting Committee to prepare a Draft Charter' or Articles of Agreement based upon the Report and other documents of the First Session, editing for clarity and consistency the portions of the text on which the Preparatory Committee came to a substantial identity of views, preparing alternative drafts of those portions on which there remained a division of general views and preparing suggested drafts covering such uncompleted portions as were referred to it by the Preparatory Committee, together with such explanatory notes and commentaries as the Drafting Committee might consider desirable and useful.

2. The Drafting Committee was convened at the temporary headquarters of the United Nations, Lake Success, New York, on 20 January 1947 and concluded its work on 25 February 1947, having held a total of twenty-nine meetings. Representatives from all the members of the Preparatory Committee attended, with the exception of the Union of Soviet Socialist Republics which stated that it was not in a position to take part in the work of the Drafting Committee. Colombia and Mexico sent representatives to observe the proceedings, in which the representatives of the Food and Agriculture Organization, the International Bank for Reconstruction and Development, the International Labour Organization and the International Monetary Fund actively participated.

3. The Drafting Committee availed itself of the Rules of Procedure of the First Session and worked according to the following plan. An examination of the text of each Article of the Charter drafted at the First Session was first made in plenary session together with any amendments introduced by delegates or suggested by the Secretariat. During this examination a new text of each Article which had been amended was established and reproduced by the Secre

1 Whenever the words First Session or Second Session are mentioned the First or Second Session of the Preparatory Committee is understood.

* Whenever the word Charter" standing alone is used in this Report, it refers to the Charter as drafted by the Drafting Committee; when other texts or the Charter of the United Nations are referred to, the full title is given.

By retaining the title of "Charter" the Drafting Committee did not intend to indicate that it approved or disapproved of the use of this term. This is a point which may need to be considered at a later stage.

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