Regional President Speech

THE BRETTQM WOODS PROPOSALS by Karl R. Bopp Before a Special Meeting of Philadelphia Bankers at the Rittenhouse Club 6:30 p.m., March 6, 1945 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis w u m m m m m m m Background of international relations ¿U Introduction ajJU *M 1* An »Xpert 1» one who lfl*«w>gn1nnr lnaccuraci»» as he sweeps an to the ■ajor fallacy. 2« It 1# a. fukiasental tenet of deaocragy that it doean1t require an expert ■ake a wise ehoice aaong fundamantal alternatives. B. Major factor« 1. SMtruotioo ha# gone so far (murt be near |1 trillion). Gis ii rebuild? - nip and tuck. Determination sat to rely on old **&ods. 2# Social revolution a. Even before the war we had not solved fundamental social, economic, and political questions. To an increasing extent people turning to Government. b. Aggravated by war - great masses now refuse to believe that economic ills are inevitable. That if necessary Government can and oust do something. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis c. Differs #®ong countries in degree to tihleh movement has gone. C. Conditions of a possible solution: no one has clear-cut answer to meet, every con­ tingency. ¿2*t ****-' **•*» *nrv£, u«v «hJU ^ <***^* 1. Must attack on all fronts at the same tise. OMyAti» ^ 2« In the political sphere: Collective Security TUmM ¿*** iL. a. A unified policy: no falling out among each other. b. Based on law and morality. c. Must give up right to use military force for selfish ends. - Must use military powers tOrmaintain security of all. 3* In the economic sphere: Mutual Aid a. Our only hope - because of the social revolution - is an expanding economy. b. To achieve it we must mutually give up our economic weapons. c. We must commit ourselves to economic as well as political peace. d. We must be assured that others will not attack. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 3 - |. Method of achieving agreement. 1. Two years of discussion among all interested parties. 3 vr* 2. Result; the miracle of the plans - agreement among experts. ^ ¿AijlCit* 3« One person could write a better plan but hundreds couldn't do it better. A '5y “>• e f j The International Monetary and Financial Proposals A* They are only part of a comprehensive organization* 1. Collective security in the political field. ^ 2. Trade policies and practices. B. The background of the plans. 1. Rules of the gold standard game developed over a century of peace and stability following Napoleon. 2« First World War shattered the whole structure. 3* Attempted restoration in the 1920's. a* Individual instead of joint action. Austria in 1922 to Portugal in 1929- b. Relation to pre-war parities. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Tile nature the effects of the Increase In the price of the Arnd from 14*32 in June 1924 to #4.37 in June 1925 msy be illustrated clearly by reference to « single British export industry* A correspondent of the London Economist reported in the Jtane 27, 1925 Issue that in Brasil, American coal was being quoted at $8*85 as agtlnst 99 shillings for British coal, «hen, as in June 1924» the quotation is #4*32 jwr pound, 39 «Hillings are equal to $8.42; but when, as in June 1925, the quotft^ien i» $4*87» the ease number of shillings are worth $9*50. Thus with jg fibflUBtfHI In either the dollar or the sterling quotation on coal but with a change from $4.32 to $4.87 in the quotation on the pound, British coal ceases to bo $0.43 per ton cheap# and beeooes Instead 10.65 per ton dearer than American coal in the Brazilian markoi. yjt * /£> £ f***' ***- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis 4 - - T/Utf' | • AACtrd ^ 4. Failure of the restoration attempt a* Causes (1) Sterling p a r i t y 5v (Merged 10% more than it vas f a 1*rth* ^ Had to reduce domestic prices and wages - unnmpl oywayit. (2) firanc undervaluation* Jfcperable balance on currant account to pay for cheap R*nch goods. (3) Other errors* b. Effects (1) Competitive exchange depreciation to capture vorld markets. Retaliations by shutting the hone market (inport quotas). (2) Multiple currency devices. Sigh price for goods over which yon have a monopoly. Iiqv prie# for coijpetitive goods. (3) Bilateral clearing arrangeaents with cohort surplus neighbors* c* Conclusions (1) Primary objective of countries was to protect themselves - acting individually. Digitized for FRASER M I iA http://fraser.stlouisfed.org/ j# aJt+ÿ* fa* Federal Reserve Bank of St. Louis - 5 - (2) Result ms to destroy itoM trade mil arowd* JU~ Deteyaipat.joft, to avoid in the Axbure. III. Tli@ lnt«roatioiml Bute for Reconstruction and Development. A* Reception of the plan. 1* Widely accepted, hence need not discuss v«ry *ach. B« Principles. 1. Head for long tern capital for specific projects. 2. Reluctance of inaivlciual investor to provide sxeept at very high rates if* ' at an. 3« Jteternatioml 'sharing of tbs risks. !?• The Intenmtioml Monetary Jtand A. iBtroduatiaa 1. To provide high level of productive em- p&oyBetit m mast «pand world trade* 2. Gaa't ®fceo®pHflh if m follow tact log Of ItJO»#. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 6 - 3« All countries would like to go along . . ( j. but eachxWQai<U%wo+e buy no more --than it sells« (r~~' That is, to capture as much of the world market as possible. B. The Fund: 1. A permanent institution to promote international monetary cooperation. By providing machinery for consultation and collaboration on international monetary problems. To promote exchange stability, to main­ tain orderly exchange arrangements among members, and to avoid competi­ tive exchange depreciation. "It would facilitate the creation and maintenance of a sowd currency basis for the balanced growth of international trade by establishing and by assisting members in following rules of good conduct based on the proposition that exchange rates are properly matters of international concern. * C. The conflicts. 1. On rates. a« Exchange stability - U.S. b. Flexibility - others, esp. U.K. & Australia. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 7 - 2* On controls* a. Free exchange - U*& b. Controls - others B* The reconciliation* 1. On rates* a. Others agree not to change except to aeet fundamental lack of balance. (I.*., fiiglandj 1925-30) Would agree on}y if t&*gf hare a It second line of reserves* b* We agree to permit changes but only if really needed. And establishment of a fund of additional reserves. ■jj-mJ tv*f A i ■ * 2. On controls. un­ successful removals to make currencies multilateral. S iw. t ' t A*-.- i * '* 3* On second line of reserves (the Fund). a. They say automatic right. b. We say only if live up to terms and conditions. £. Objections to the Fund* 1* Why have two organizations? Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis a. Two very different full-time jobs. (1) The Bank loans for specific purposes. (2) The Fund to see it is not misused. Analysis of balance of payments. b. If consolidated, one would tend to become a stepchild - or so delegates of the 44 nations believe. No objection if could assure this wouldn't happen. Actually, those who would consolidate would emasculate the Fund. The Fund permits too much flexibility in exchange rates and too much control over exchanges. a. This was the great issue before and at Biretton Woods. b. ABA says: "The Monetary Fund...goes far beyond the principles heretofore accepted by the United States in recognizing and approving changes in currency values and the maintenance of exchange controls." (1) How does the ABA propose to meet? Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis "That an article be added placing on the governors and directors of the Bank responsibility for arranging and negotiating 23 agreements between the member 3b countries with respect to the stabilization of currencies, removal of exchange controls as rapidly as practicable, ana the general rules of procedure in carrying out monetary policies." (2) How would this secure more stability and speed? p ) Fund brings all up to minimum level - ABA each at lowest level it will accept. c M ABA would not give the positive powers the Fund will have over rates and controls. 3. Access to the Fund is too easy. a. The purpose is consistent with the purpose of the Fund. b. The amount does not exceed 25% of the quota in any twelve-month period or 200% of the quota in all. c. The member repurchases - that is, repays - at the end of each year a portion of its currency, depending upon its resources. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -lO- ci. It pays specified charges. e. The Fund has not otherwise limited the member or declared it in­ eligible to use the Fund because of prior abuses. f. The Fund has not declared scarce the foreign exchange the member wishes to purchase. In addition, and more importantly in many cases, proponents of the Fund rely upon the good faith of the member and upon the quality of management of the Fund. 4. Scarce currency provisions. If dollar becomes scarce, countries may impose restrictions. a. Fund will not cause dollar scarcity but will tend to mitigate. b. If dollar becomes scarce, restrictions would be imposed without the Fund but in less orderly way. V. Conclusions. A. The position oi the State Department in international negotiations* ^ i, Hhkf - ixs&y ¿0 Kj B. Not a perfect document: peaeifrili^y of revision, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Mr. President, I conceive that there are several parts of this Constitution which I do not at present approve, but I am not sure a o that I shall never approve them. For having lived long, I have T3 •H a -P experienced many instances of being obliged by better information, cd -P or fuller consideration, to change opinions even on important sub­ O •H •H -P jects, which I once thought right, but found to be otherwise. * * * aJ CO C3 In these sentiments, Sir, I agree to this Constitution with all its O o faults, if they are such, t 0) 2 i o s O - |a a p • ) + o o r 3 * able t I o d m o a u k b e t a t o b o e w t h t e e t r h e C r on s a t n i y t u o t t i h o e n r . co F n o v r e n w t h i e o n n y we o u c a a n s se o m b b t l a e i n a m a n y u m b b e e r h 0 0) ai - -p p °f men to have the advantage of their joint wisdom, you inevitably ft E C c D assemble with those men all their prejudices, their passions, their •H si d errors of opinion, their local interests and their selfish views. O CO <1> r • a H -P From such an assembly can a perfect production be expected? U -P ft o CO •H c s It therefore astonishes me, Sir, to find this system approach­ o o 5 s r—1 ing so near to perfection as it doesj and I think it will astonish o M a> o C our enemies, who are waiting with confidence to hear * * * that CO a> f a t i our States are on the point of separation only to meet hereafter fa for the purpose of cutting one another's throats. Thus, I consent, • • Sir, to this Constitution because I expect no better, and because o I am not sure that it is not the best. The opinions I have had of its errors are sacrificed to the public good. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Karl R. Bopp (1945, March 5). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_19450306_karl_r_bopp

@misc{wtfs_regional_speeche_19450306_karl_r_bopp,
  author = {Karl R. Bopp},
  title = {Regional President Speech},
  year = {1945},
  month = {Mar},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_19450306_karl_r_bopp},
  note = {Retrieved via When the Fed Speaks corpus}
}