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AND POWERS, ETC.

HEARING

I COMMITTEE ON
COINAGE, WEIGHTS, AND MEASURES
// nois OF REPRESENTATIVES

SEVENTY-SIXTH CONGRESS

FIRST SESSION

ON

H. R. 3325

A BILL TO EXTEND THE TIME WITHIN WHICH THE
POWERS RELATING TO THE STABILIZATION FUND
AND ALTERATION OF THE WEIGHT OF THE
DOLLAR MAY BE EXERCISED

| FEBRUARY 28, MARCH 3, 7, 8, 10, 17, AND 23, 1939

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UNITED STATES
GOVERNMENT PRINTING OFFICE
139157 WASHINGTON: 1939

COMMITTEE ON COINAGE, WEIGHTS, AND MEASURES
SEVENTY-SIXTH CONGRESS
ANDREW L, SOMERS, New York, Chairman

JOHN J. COCHRAN, Missouri CHAUNCEY W. REED, Illinois WILLIAM H. LARRABEE, Indiana AUGUST H. ANDRESEN, Minnesota COMPTON I. WHITE, Idaho ROBERT LUCE, Massachusetts CLAUDE V. PARSONS, Illinois * E. HAROLD CLUETT, New York WILL ROGERS, Oklahoma LEONARD W. HALL, New York DAN R. McGEHEE, Mississippi FRED C. GARTNER, Pennsylvania VINCENT F. HARRINGTON, Iowa FREDERICK C. SMITH, Ohio

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House of REPRESENTATIVES, CoMMITTEE ON CoINAGE, WEIGHTS, AND MEASURES, Washington, D. C.

The CHAIRMAN. Gentleman, the committee will come to order, please. We are considering H. R. 3325, to extend the time within which the powers relating to the stabilization fund and alteration of the weight of the dollar may be exercised.

If there is no objection, the chairman will assume that it has been heard on its first reading.

We have the privilege, this morning, of hearing the Secretary of the Treasury give his reasons why i. feels it necessary that the powers in this measure should be extended.

I would appreciate the committee's permitting the Secretary to complete his statement before questioning him. Following that, I think the Secretary will be glad to answer the questions of any member of the committee.

(The bill, H. R. 3325, follows:)

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A BILL To extend the time within which the powers relating to the stabilization fund and alteration of the weight of the dollar may be exercised

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That subsection (c) of section 10 of the Gold Reserve Act of 1934, approved January 30, 1934, as amended, is further amended to read as follows:

“(c) All the powers conferred by this section shall expire January 15, 1941, unless the President shall sooner declare the existing emergency ended and the Operation of the stabilization fund terminated.”

SEC. 2. The second sentence added to paragraph (b) (2) of section 43, title III, of the Act approved May 12, 1933, by section 12 of said Gold Reserve Act of 1934, as amended, is further amended to read as follows: “The powers of the President specified in this paragraph shall be deemed to be separate, distinct, and continuing powers, and may be exercised by him from time to time, severally or together, whenever and as the expressed objects of this section in his judgment may require; except that such powers shall expire January 15, 1941, unless the President shall sooner declare the existing emergency ended.

STATEMENT OF HON. HENRY MORGENTHAU, JR., SECRETARY OF THE TREASURY

Secretary MoRGENTHAU. Mr. Chairman, members of the committee, on January 19, 1939, the President wrote to the President of the Senate and the Speaker of the House of Representatives recommending the extension of the powers conferred by section 10 of the Gold Reserve Act of 1934 dealing with the stabilization fund and certain powers specified in the act of May 12, 1933, relating to fixing the metallic content of the dollar, which would otherwise expire on June 30, 1939. H. R. 3325, which was introduced on January 26, 1939, by Chairman Somers, is in accord with the recommendations of the President and I am appearing before you in support of this bill. A discussion of the provisions of H.R. 3325 may be conveniently divided into the provisions dealing with the extension of the stabilization fund powers (Sec. 1 of the bill) and the provisions dealing with the extension of certain powers specified in paragraph (b) (2) of Section 43 of the act of May 12, 1933, which principally involve (a) the power to alter the weight of the gold dollar and (b) the unlimited coinage of silver. If it is agreeable to you and the other members of the committee, Mr. Chairman, I propose to take up the provisions of H. R. 3325 in that order.

I. CONTINUATION OF THE STABILIZATION FUND POWERS

The stabilization fund of $2,000,000,000 was established by Sec. tion 10 of the Gold Reserve Act of 1934, which was enacted on January 30, 1934. The $2,000,000,000 placed in the fund was obtained from the increment accruing to the Treasury from the decrease in the weight of the gold dollar and consequent increase in the value of the gold held by the United States. As originally provided, the stabilization fund had a life of 2 years and the President was authorized to extend the period for 1 additional year. This he did on January 10, 1936. In January 1937 Congress, in an act similar to the bill now being considered by the committee, extended the life of the stabilization fund until June 30, 1939. The purpose of the legislation now before your committee is to extend the fund until January 15, 1941.

During the 3 years immediately preceding the creation of the fund more than 30 nations had departed from the gold standard and had adopted either floating currencies or exchange controls. Confronted with these monetary developments Congress, fully appreciating the need for a special fund, with ample reserves and adequate power to cope with this new trend in international monetary matters, created the stabilization fund.

Since the establishment of our stabilization fund other countries have abandoned the pre-1931 gold standard, until now every country except the United States and one other country, important commercially has a currency which, in effect, is either a floating currency or is subject to exchange controls.

hereas before 1931 currencies fixed in terms of gold and stable

in terms of exchange rates characterized most of the world monetary systems, there now prevail currencies with differing nominal, actual, and even bootleg rates, floating currencies, exchange controls, and exchange-clearing agreements. Formerly rigid mint parities and unrestricted gold movements ruled international currency relationships; now dependence has to be placed chiefly upon the day-to-day decisions of governments adapted to the continually shifting economic, political, and monetary conditions.

The purpose of the fund is to stabilize the exchange value of the dollar. In carrying out this purpose, the fund undertakes a variety of operations. Sometimes it is called upon to prevent violent fluctuations in exchange rates induced by acute political developments which cause flights of capital from one country to another. Such, for example, was the situation created in the fall of last year when, as a consequence of the Czechoslovakian crisis, a large volume of funds sought to leave Europe for the United States. The outflow of funds was so large that the amount of gold which it was necessary to ship from Europe to provide dollar balances was far greater than could be taken care of through normal commercial channels. If there had been no stabilization fund to cooperate with the other funds, the dollar exchange would have fluctuated so violently as to disrupt our trade. International monetary chaos might have ensued. The occasions which call for operations of the magnitude undertaken by our fund last fall are, however, sporadic. Normally the stabilization fund is concerned with hour-to-hour and day-to-day fluctuations in the dollar-exchange rate. When the exchange markets are quiet and there are no unusual disturbances, it is not necessary for the fund to take an active part in the market. At such times it operates in relatively small amounts and participates in a relatively small number of transactions each day, and may even not enter the market at all. When, however, for one reason or another the operations in the various exchange markets become speculative or panicky in character, with abnormal fluctuations, then the stabilization fund steps into the market and becomes active in buying and selling gold and foreign exchange for the purpose of minimizing fluctuations. During these operations it is frequently necessary for the stabilization fund to acquire foreign currencies. The fund attempts to carry out all such transactions with a minimum of risk. In the past we have been successful in avoiding risk of exchange loss through special reciprocal arrangements between cooperating Treasuries under which foreign o is immediately convertible into gold at a price fixed each day. Incidentally, it should be pointed out that be-, cause we wish to avoid the possibility of an exchange loss we frequently forego the possibility of an exchange profit. There are also occasions when the exchange rate between the dollar and the currency of a country with small gold holdings is subjected to pressure because of unfavorable political or economic developments. The fund can be employed, and has occasionally been * in such circumstances, to help stabilize the dollar exchange. For example, our arrangement with China was just such an operation. There was strong pressure against the dollar-yuan exchange, and China needed dollars in order to strengthen the dollar-yuan exchange rate, thus avoiding additional obstacles to our trade. To eliminate any risk of exchange loss, China agreed to repurchase the yuan at the same rate at which the United States purchased them, and China's promise was backed by adequate gold and silver collateral, which was kept on deposit with Federal Reserve banks.

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