Friday, August 9, 2013

FRASER - speculative capital movements, balance of payments, gold transfers, and interest-rate differentials

Transmitting Office Correspondence from J. Herbert Furth to Mr. Marget regarding "speculative capital movements, balance of payments, gold transfers, and interest-rate differentials."
Marget, Arthur W.


"Short-term capital movements were important in the U.S» balance of payments deficit and in the decline in the U.S. gold stock during the second half of i960 (see the attached table)*
fhese movements can be explained in part by interest-rate differences between the United States and other financial centers, but in large part also by other factors, including (but not limited to) uncertainties as to the future gold value of the dollar..."

"...Avoidance of excessive capital movements
Large movements from dollars into gold or other currencies can basically be attributed to an excessive supply of dollars abroad. In the 2-1/2 years preceding the start of that movement in mid-1960, official and private liquid dollar holdings (short~term claims and holdings of U.S. Government bonds and notes) of foreign countries rose $k billion. If it had not been for this increase, foreigners presumably would have been glad, in the aggregate, to keep not only existing assets but also moderate further receipts in the form of dollars: before 1958, foreigners used to complain about an international scarcity rather than an international glut of dollars.
As long as the ^basic11 balance of payments of the United States remains in long-term equilibrium, and the supply of dollars to foreigners therefore remains limited, even relatively large capital movements would be unlikely to result in a general "flight from the dollars* In principle, therefore, the best way to avoid excessive folaMie^ capital movements will be to restore and preserve equilibrium in the ^basic*1 balance of international payments of the United States...."



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