Speech

For Release on Delivery Thursday, September 23, 1971 11:00 a.m. , E.D.T. STRUCTURAL CHANGES IN THE CANADIAN-AMERICAN BALANCE OF PAYMENTS A Paper Presented By Andrew F. Brimmer Member Board of Governors of the Federal Reserve System Before a Conference on Canadian-United States Financial Relationships Sponsored by Federal Reserve Bank of Boston Bald Peak Colony Club Melvin Village, New Hampshire September 23, 1971 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis STRUCTURAL CHANGES IN THE CANADIAN-AMERICAN BALANCE OF PAYMENTS By Andrew F. Brimmer* Almost exactly one year ago, I spoke on roughly the same topic in Montreal.—^ A number of observers on both sides of our border (but particularly in Canada) found that paper interesting enough to comment on it rather extensively. While I was naturally flattered by this reaction, I also noted the lack of enthusiasm among some Canadians with respect to my views on the issues I raised. In fact, not a few commentators thought I was simply wrong. This paper is intended to update and to extend the dis- cussion of several of the questions considered in that paper as well as to discuss a number of developments that have occurred since then. Last year, I noted several basic shifts in Canadafs payments situation -- particularly with respect to trade flows and the long-term capital account. I observed that, in the last half of the 1960fs, Canada ^Member, Board of Governors of the Federal Reserve System. I am indebted to several members of the Board's staff (especially to Messrs. Robert M. Dunn, Jr., Robert Sammons, and Samuel Pizer) for assistance in the preparation of this paper. 1/ See "United States-Canadian Balance of Payments: Prospects and Opportunities11, presented before the First National Conference of Canadian Bankers, sponsored by the Institute of Canadian Bankers, September 28, 1970. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -2- experienced a sharp swing from a large deficit to a sizable surplus with the United States. Simultaneously, a weakening occurred - - at least temporarily -- in its formerly strong surplus with the rest of the world (especially with industrial countries other than the United States). Canada's current account and its overall payments balance generally strengthened during that period. Observing these changes, a year ago I asked whether the shifts were permanent or transitory. Canada's long-term borrowing in the United States was quite heavy in that period, producing sizable increases in Canadian reserves, and raising the question of whether Canada really needed to be -- or ought to be -- as dependent on external capital as it had been in earlier years. The role of Canadian borrowing in the United States capital markets was of more than cursory interest to us at the time because of our precarious balance of payments situation. This occasion provides an opportunity to take another look at the structural transformations which appeared to be present in the United States-Canadian balance of payments a year ago to determine whether they are continuing or have instead been reversed. In the meantime, of course, a watershed has been crossed in the balance of payments policies of both countries. The Canadian Government's decision at the end of May, 1970, to allow the Canadian dollar to float has pfcoved to be somewhat more than transitory. The United States measures announced in mid-August of this year have Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -3- resulted in at least temporary changes in the payments system. While I certainly would not join the host of obituary writers for the Bretton Woods system, it does seem to me unlikely that we will simply reinstate without significant modification the balance of payments arrangements that have been in place for more than a quarter of a century. On the other hand we do not want to overlook the success of the system of the previous period in providing a framework in which restrictions on world trade were greatly reduced and in which the resulting rapid growth of trade provided a crucial impetus for the recovery of Europe and Japan. Having said this, I must also hasten to add that I do not want to contribute to the flood of speculation on the future payments system that is likely to emerge. In the wake of the recent U.S. actions, we have seen once again that steps taken to deal with U.S. global problems have a direct and perhaps disproportionate effect on Canada. I believe it is important to note, however, that beyond the immediate difference in view on the 10 per cent surcharge on U.S. imports, there is a basic common interest between our two countries in achieving a more viable structure of exchange rates, reductions in trade barriers generally, and a less rigid environment for balance of payments adjust- ment. If the U.S. initiative succeeds in generating some forward motion on these questions, we will be able to judge more clearly whether any given exchange rate relationship is appropriate. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -4- It is not my purpose here to consider how the immediate differences in the economic policy objectives of our respective governments can be resolved. That task remains the province of the governments themselves, and we must be careful to avoid treading on their preserves and thereby prejudicing their activities. Rather, I would address myself to several issues relating to Canadian- American financial relations that are of interest to economists generally as well as to those with responsibilities for public policy. This range of issues can be posed in terms of several questions: Is Canada's current account surplus transi- tory? If it is, one might consequently expect Canada to remain fundamentally an importer of capital. On the other hand, if Canada's current account situation has fundamentally changed, has Canada about reached a stage in its development where it might become a net exporter of capital in the long-run? If changes in exchange rates ultimately are assigned a greater role in maintaining the bal- ance of payments in equilibrium, would it s t i ll be desirable to foster special trading arrange- ments -- such as the automotive agreement -- which significantly shift the trade balance in the direction of one country or the other? Before turning to a further discussion of these questions, it might be helpful to review briefly recent trends in the balance of payments of our two countries. Recent Trends in the United States Balance of Payments Although the United States had a payments problem in the early 1960's, the situation then was reasonably hopeful. An increas- ingly strong trade and current account showed some signs of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -5- being sufficient to cover a normal volume of capital outflow. In 1960- 64, the United States had an annual trade surplus averaging $5.4 billion, a statistic which evokes a sense of nostalgia in 1971. But from 1964 on, the widely discuussed inflationary pressures in the United States, together with increasingly effective production capabilities in other industrial countries, brought a swift deterioration in our trade account. Of course, we also had the burden of large foreign military expenditures. Increasingly tight controls over capital out- flows, however, probably helped somewhat to reduce the overall pay- ments deficit, and the United States also benefited from a larger inflow of foreign long-term capital. As late as a year ago, we had some confidence -- or at least hope -- that our balance of payments problems could be dealt with through the orthodox approach of reducing excess demand and thereby improving our international price competitiveness. The results for 1970 and early 1971 ended this hope. Although the recession of 1970 combined with considerable inflation abroad to produce a modest current account gain, the lessening of monetary restraint called for by domestic considerations caused a large reflow of previous capital inflows, and the overall accounts showed a $9.8 billion deficit in that year. (See Table 1 attached.) Thus far in 1971, particularly since the first quarter, the trade account has deteriorated -- despite the continuing lack of excess demand in the United States -- and continuing large capital outflows made the situation intolerable by summer. Clearly we could not expect to tecover through demand management the losses in competitiveness that Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -6- had accumulated in the 1960fs. Our absolute levels of costs and prices were too far above those of our competitors. Once this situation became clear, it led to the conclusion that the set of exchange rates facing the United States was no longer viable. The appreciation of the Canadian dollar after May, 197Q certainly helped. Unfortunately, to correct the deficit in the American balance of payments will require more pervasive adjustment, and we have had to move to encourage exchange rate changes for other surplus countries. The extent to which inflation continues in the United States -- despite unemployment — as well as in the economies of many of our major trading partners, makes it difficult to foresee success for the orthodox adjustment mechanism for anything but rather modest imbalances. It certainly was not successful for the United States. And I know that those responsible for economic policy in this country tried, however imperfectly, to make it work until the domestic output and employment implications of its use became unacceptable. Recent Trends in the Canadian Balance of Payments The Canadian payments situation since the mid 1960fs has been considerably happier. The Canadian current account went from deficits of about $1 billion in 1965 and 1966 to a surplus of $1.2 billion in 1970, and it has been doing approximately as well thus far in 1971. (See Table 2.) Despite the inproving current account, Canada continued to import large and increasing amounts of long term Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -7- capital through 1969. However, this inflow has declined since then -- in part because of government policy designed for this purpose and thus to restrain upward pressure on the exchange rate. From 1965 to 1969, rapidly increasing outflows of short-term capital maintained approximate equilibrium in the overall balance of payments, and these flows probably masked an increasingly undervalued Canadian dollar. Canadian reserves were relatively stable in 1967 and 1969 and rose sharply only in 1968. In 1970, the emerging Canadian surplus -- with its implication of an undervalued Canadian dollar -- became far more apparent. Partly in response to this situation, on June 1 last year Canada returned to the floating exchange rate system of the 1950fs. The extent of the basic shift in Canada's balance of payments has been indicated quite directly by the market's appreciation of the Canadian dollar from 92-1/2 U.S. cents to 98-1/2 cents since June, 1970. The fact that the Canadian current account remained in surplus despite this appreciation is even more striking. The Canadian recession of that period was only slightly deeper than that in the United States, so Canada's cyclical situation probably provided only a limited source of upward pressure on the current account and the exchange rate. In my own mind, this outcome raises some fundamental questions about Canada's historic role as a sizable recipient of net capital inflows. As we know, these inflows have been used to finance current account deficits which were viewed as a necessary source of real resources for Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -8- Canada's development. I will return to this issue in a few minutes. But before doing so, we should make a brief review of the Canadian- American bilaterial balance of payments. Canadian-American Balance of Payments in Perspective One has to begin a discussion of this topic by asking why we ought to be interested in bilateral payments patterns between Canada and the United States. There are two reasons for our continued interest in this subject. The first is historical. Obviously the worsening U.S. payments position with Canada had something to do with the overall U.S. payments problem which led to the measures adopted in August. Second, in looking ahead, we cannot assume that the exchange rate system which will grow out of the current negotia- tions will necessarily solve all of the U.S. or Canadian payments problems. Hence we must retain a continuing interest in recent bilateral payments patterns as a guide to potential problems. Canada has enjoyed an amazingly consistent record of improving trade and current account balances with the United States since the mid-19601s. As shown in Table 3, Canada's trade account with the United States showed a deficit of $965 million in 1965. The balances improved in each of the following five years to reach a surplus of $1.1 billion in 1970. Canada's current account began its year-by-year improvement in 1966, rising from a deficit of $2.0 billion in that year to only Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -9- $59 million in 1970. Both the size of the improvement in Canada's position (or the worsening of the U.S. position) and the consistency of the pattern over a five-year period are impressive -- or quite discouraging, depending upon one's point of view. Despite this improvement in Canada's current account with the United States, Canada continued to raise large amounts of long- term capital in our market through 1969. This flow declined in 1970, and apparently so far this year it has been further reduced. Short- term capital flowed from Canada to the United States in increasing amounts between 1965 and 1968. This was partly due to policies aimed at fulfilling the requirements of the Canadian-U.S. reserve agreement of 1963. Following the modification of that agreement in December, 1968, the Canadian outflow was reduced sharply in 1969 and 1970. Canada's overall payments balance!/ with the United States improved greatly in the last half of the 1960's, rising from a deficit of $1.5 billion in 1965 to a surplus of $626 million in 1970. This was accomplished in a consistent pattern of year-by-year improvements. The approximately $2 billion swing in the bilateral account against the United States in a five-year period represented an important part of our generally unfavorable payments experience. Thus, it undoubtedly contributed to the deterioration in the U.S. international position which made the mid-August measures inescapable. From the U.S. point of view, I should note that about 83 per cent of the improvement in Canada's trade balance in the last half of 2/ That is, current and capital account combined, excluding officTal monetary flows. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -10- the 1960!s was in trade with the United States. Since about 70 per cent of Canada's trade is typically with the United States, this does suggest a relative concentration of Canada's gains in trade with the United States. The largest proportion of this improvement resulted from the effects of the 1965 automotive agreement -- which have been variously estimated at between $1 billion and $1.5 billion. In my opinion, tha t agreement certainly turned out to be something less than an unmixed blessing for the United States. But, since we agreed to it, we can hardly complain (at least not very loudly) about the consequences. On the other hand, I think it is appropriate to wonder whether Canada now feels able to live without the transitional arrange- ments. At a distance, one might expect that any resulting loss of automotive exports would produce a somewhat lower exchange rate -- which in turn would improve prospects for other Canadian export industries. In looking at Canadian trade performance from a U.S. point of view, two important points should be made. First, there is no evidence of Canadian discrimination against the United States of the type sometimes alleged for Japan and Europe. Second, statistics which have become available since a year ago indicate a reversal of the trend toward a worsening of Canada's trade position with the rest of the world. This trend, which appeared particularly in the 1969 data, was sharply reversed in 1970 when Canada's trade balance with the rest Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -11- of the world improved by about $1.3 billion. The United States may not be happy about our trade developments relative to Canada, but we cannot argue that Canada has arranged her trade policies to discriminate against the United States or to ignore export oppor- tunities in the rest of the world. This conclusion obviously leads to the question of the U.S. 10 per cent surcharge and its application to Canada. We are sensitive to the implications of this move for Canadian exports in general and for some Canadian industries in particular. We have not reversed our fundamental orientation toward free trade. I can assure you that we are not happy with the necessity of adopting such an unpleasant, i f temporary, posture with respect to our payments problems. While we do not enjoy asking Canada to be patient, we do hope that the seriousness of our payments problems will be appreciated. ii The seriousness of the surcharge for Canada, however, should not be overestimated. It is calculated that about 25 per cent of Canada's $11 billion of exports to this country is affected by the surcharge. This means that an even smaller percentage of Canada's total exports (perhaps one-sixth) is affected. In addition, the fact that Canada is now on a floating exchange rate 3/ It is worth noting in passing that Canada applied a similar sur- charge in the midst of payments difficulties in 1962, and the United States was not exempted. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -12- means that any significant decline in exports of dutiable goods probably will be largely offset by the effects of the resulting depreciation of the Canadian dollar on other export and import competing industries. That view, of course, looks at Canada as a whole. I realize that the primary difficulty in the surcharge for Canada is its impact on particular areas: it hurts certain narrow sectors of the economy and regions of the country, although its net effect on the economy as a whole may be quite limited. We can certainly understand Canada's concern over these industries and regions. Yet, I think it is also helpful to emphasize that the surcharge is not quite the general disaster for Canada that some press reports have suggested. Lessons of the Recent Canadian Balance of Payments Experience As indicated above, one of the issues concerning Canada's payments experience which I raised a year ago, and which is even more relevant now, is the question of Canada's continuing need for net capital in- flows and hence for heavy use of the New York capital market. Many Canadians have long held the view that the country's potential saving was so low relative to the need for capital that it could not possibly develop without large amounts of foreign capital, and hence without free access to the New York capital market. This argument was quite compelling when Canada had a small population and Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -13- much lower levels of per capita income. However, after a decade of vigorous economic growth, it is not quite so convincing today. Canada's large current account surplus in 1970 meant that Canada was actually a net exporter of capital in that year, counting reserve accumulation as a capital export. The same results thus far in 1971, in the face of the appreciation of the Canadian dollar, suggest that Canada may well become fundamentally an exporter of capital to the rest of the world. Although this is admittedly a long view, and the implied payments pattern may not develop after world exchange markets settle, it does seem fairly unlikely that — in the near future and even at relatively full employment -- Canada will again run a sizable current account deficit which would require financin g through long-term capital inflows. The effect of the automotive agreement and the rapid growth of Canada's oil and gas exports have fundamentally changed Canada's payments situation to a degree which has not been generally recognized. In my opinion, continued failure to recognize this change might lead to seriously incorrect prescriptions for Canadian balance of payments policies. The trend of long-term capital inflows into Canada can be traced in data published by the Bank of Canada. In 1965, net new Canadian issues amounted to Can.$2.5 billion in all currencies, of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -14- which Can.$2.3 billion were bonds. (Table 4.) Bonds issued in Canada accounted for Can.$1.6 billion (or about 70 per cent of total bonds). Just over one-quarter (30 per cent) of all bonds sold was denominated in foreign currencies — all of which was in U.S. dollars. By 1969, total bond flotations had climbed to Can.$3.5 billion, of which Can.$0.9 billion (or 26 per cent) were payable in United States dollars. In 1970, total bond sales rose further to Can.$5.0 billion, but sales in foreign currencies dropped noticeably — to only Can.$600 million (about 18 per cent), all in U.S. dollars. More recently, in trying to reduce upward pressure on the exchange rate, the Canadian Government has requested that Canadian borrowers avoid raising funds in foreign markets and instead borrow at home. The result has been a sharp decline in Canadian bond flotations in New York and other foreign markets. In the first six months of 1971, total flotations of Canadian bonds were $2.8 billion, compared to $1.3 billion in the same period of 1970. Of the 1971 volume, only $0.2 billion (about 7 per cent) was raised abroad -- all of which was in U.S. dollars. In contrast, in the first half of 1970, flotations denominated in U.S. dollars amounted to $0.4 billion, representing 31 per cent of the total. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -15- It should be noted that the sharp improvement in Canada's current account in recent years of necessity implies an increase in Canadian savings relative to domestic investment. In 1970, this was in part the result of the recession, which restrained the normal growth of capital equipment expenditures. At the same time, however, Canadian personal savings grew by $541 million in 1970 while per- sonal disposable income rose by only $3,038 million. This represents a marginal propensity to save of 18 per cent. This hardly sounds like an economy in which savings are not growing rapidly enough to finance normal development. On the other hand, it should be noted that the increased savings were not helpful to a recessionary economy, which would have benefited from more consumer demand. Although Canada may no longer need sizable net inflows of capital to finance current account deficits, the question remains of the role of New York as a financial intermediary between Canadian borrowers and lenders. Ideally, Canadian financial markets would intermediate between the apparently different liquidity and safety needs of Canadian savers and investors, and this may be occurring to an increasing degree. The request by the Canadian Government that borrowers stay away from New York has forced an increasing amount of long-term financing into the Canadian markets. This has probably resulted in these markets growing and broadening more rapidly than they otherwise would have. About $2*6 billion of new bonds were sold in the Canadian markets in the first six months of 1971, compared to $0.9 billion in the same period of 1970, and $0.5 billion in 1969. From the U.S. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -16- point of view, this is a desirable development. Whatever the inter- national payments system of the future, we are likely to be more comfortable about our payments situation if the pattern of short-term capital flows from -- and long-term capital flows to -- Canada is reduced in importance. The final question which I would like to explore against the background of recent Canadian experience relates to the automotive agreement. If the new international monetary arrangements do assign a more important role to exchange rate changes as an adjustment tool, special trade arrangements such as that agreement may not necessarily be ideal for the country gaining relatively more exports. When such arrangements shift the trade balance significantly in the direction of one country, the effect must ultimately be an appreciation of that country's currency and potential injury to its other export and import competing industries. One might ask whether Canada would have been forced to float its exchange rate in 1970 if the automotive pact had been designed to leave the overall balance of trade largely unaffected. Again, at a distance, it appears that a sizable share of the adjust- ment problems now facing the Canadian economy as a result of the 6-1/2 per cent appreciation of the Canadian dollar might be traced to the trade balance effects of the automotive agreement. This suggests that it might be better not to design future free tirade arrangements between Canada and the United States with the aim of affecting the trade Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -17- balance. This should leave the exchange rate and the interests of other industries relatively unaffected. Lessons of the Recent U.S. Balance of Payments Experience As far as the United States is concerned, there are a number of lessons to be drawn from its unhappy payments experience of the last few years. The most obvious of these is the danger of allowing inflationary trends to go unchecked and to become entrenched in the form of expectations. Once the excess demand pressures of 1965-68 had gone on for a year or so, large corporations and labor unions began to act on the basis of a shared expectation of further inflation. Consequently, collective bargaining agreements increasingly failed to reflect accurately labor market conditions. When fiscal and monetary restraint was finally applied, this set of expectations was not broken. This had the effect of greatly worsening the trade- off between unemployment and inflation with which national policy had to cope. Our inability to reduce significantly -- and quickly -- the rate of wage and price inflation -- and to do so without unacceptable levels of unemployment -- had a great deal to do with the deterioration of our payments situation in 1970-71. We have some hope that the wage and price freeze of August 15 and the measures which are to follow it will finally break the inflationary expectations which have plagued us. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -18- A1though the United States will undoubtedly remain a net exporter of capital in the years ahead, another lesson of recent years is that unrestrained capital outflows can put enormous pressure on our payments situation when our competitive situation is not strong enough to produce the offsetting current account surpluses. The same conclusion obviously holds for military expenditures abroad. Although the various restrictions which we have applied to capital flows (including the Interest Equalization Tax, the Voluntary Foreign Credit Restraint Program, the Foreign Direct Investment Regulation, etc.) helped to restrain our deficits, they were not sufficient to offset the effects of increasingly inappropriate exchange rates. Thus, as many observers foresaw, it became increasingly necessary to consider measures of the variety adopted on August 15. Finally, I would like to mention a view of the U.S. payments situation which has recently received some attention. It has been said that we ought to take an entirely passive approach to the problem and allow the surplus countries to adjust their own positions. The problem with this passive approach is that surplus countries other than Canada have been very hesitant to act. The result has been that decisions have been made only in periods of serious crisis. This hardly encourages well thought-out permanent solutions. Instead, it produces an ad hoc patchwork that may provide only temporary assistance. Too often inaction by governments in the face of serious imbalances has encouraged normally stabilizing short-term capital movements to become destabilizing and to generate pressures which Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -19- eventually threaten to produce a monetary crisis. In far too many cases it is only then that the governments have acted. It is clear that the United States has to be involved in --• and take considerable responsibility for -- the adjustment mechanism, hopefully to reduce the tendency of the system to drift from crisis to crisis. Concluding Observations Before closing, I want to reemphasize my awareness of the need -- ultimately -- to look at Canadian-United States balance of pay- ments relations in a much broader context. While our bilateral relations are important, the crucial trade and payments issues between our two countries eventually merge into the problems currently facing the international payments system as a whole. In my opinion, the most pressing need at the moment is for a much better understanding among the major industrial nations with respect to the fundamental goals of the payments system^ and better coordination of national goals in the areas of international trade, investment, and aid. I certainly would not want to play down attempts to negotiate new exchange rates or to promote institutional changes. But I would not be optimistic about the long-run viability of such arrangements unless there is a broad consensus on goals. It is not obvious that such a consensus exists at this time. On the record, it is clear that a basic goal of the United States with respect to the current efforts at reform is to assure that the payments system which emerges is not based on the prospect of a Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -20- continuing and sizable U.S. payments deficit. This objective should also be one of the fundamental goals of our trading partners. It means that, as a group, those countries with sizable trade surpluses cannot have as their goal for the payments system a continuation of such surpluses. I realize that the reduction or elimination of a long- standing payments surplus involves complex and difficult adjustments within an economy. Yet, one of the clearest lessons of the last year or so is the impossibility of a continuing structural imbalance in the world's payments system. In my opinion, surplus as well as deficit countries must face the domestic adjustment problems involved in returning the system to equilibrium. Even when a compatible set of goals is worked out by the major industrial countries, we will s t i ll have only a limited ability to forecast payments trends and consequently to make the necessary adjustments to reach our shared objectives. Obviously we need better forecasting techniques and better arrangements for making prompt adjustments when reasonable payments goals are not being attained. Future payments shifts must not be allowed to become entrenched imbalances as has too often occurred in the past. The current uncertainty in the payments mechanism and some features of the U.S. response to its problems are undoubtedly disturbing to Canada and to our other major trading partners. Nevertheless, the present period also provides opportunities as well as problems. We have the opportunity to improve fundamentally the payments system with which we have lived for a quarter of a century — and which has served us well during most of those years. Now we have a chance to make reforms Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -21- which will end — or at least greatly ease -- many of the problems which have plagued us in recent years. I certainly hope that the current impasse will not either produce basic divisions among the industrialized countries or foster hurried arrangements aimed at a return to normalcy -- without acceptance of the need for basic reform. If we are successful in this course and finally do produce fundamental improvements in the payments system, the inconveniences and costs to Canada -- and to other countries -- of the current situation will be far outweighed by the benefits of increased international trade and investment. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis TABLE 1. UNITED STATES BALANCE OF PAYMENTS (U.S. $ millions) First Half 1964 1965 1966 1967 1968 1969 1970 1971—' Trade +6,831 +4,942 +3,927 +3,859 + 624 + 660 +2,110 - 771 1. 2. Services - 985 - 647 -1,517 -1,720 -1,010 -1,559 -1,666 + 284 3. Current account (1+2) +5,846 +4,295 +2,410 +2,139 - 386 - 899 + 443 - 487 4. Long-term capital -5,818 -6,109 -4,024 -5,335 - 963 -1,980 -3,482 -3,960 5. Current account plus long-term capital (3+4) + 28 -1,814 -1,614 -3,196 -1,349 -2,879 -3,038 -4,447 2/ 6. Short-term capital- -1,562 + 525 +1,833 - 222 +2,990 +5,581 -6,782 -6,797 7. Total capital (4+6) -7,380 -5,584 -2,191 -5,557 +2,027 +3,601 -10,264 -10,757 8. Official settlements balance (3+6) -1,534 -1,289 + 219 -3,418 +1,641 +2,702 -9,821 -11,244 1/ Seasonally adjusted. 2/ Including errors and omissions. Source: U.S. Department of Commerce, Survey of Current Business. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis TABLE 2. CANADIAN BALANCE OF PAYMENTS (U.S. $ millions) 1964 1965 1966 1967 1968 1969 1970 1971-1.Q 1. Trade + 650 + 109 + 208 + 525 +1,276 + 799 +2,876 + 7301/ 2. Services 043 -1,157 -1,286 - 988 -1,375 -1,497 -1,633 - 3811/ 3. Current account (1+2) - 393 -1,048 -1,078 - 463 99 - 698 +1,242 + 349^ 4. Long-term capital + 760 + 801 +1,083 +1,256 +1,535 +2,097 + 780 + 268^ 5. Current account plus long-term capital (3+4) + 367 - 247 + 5 + 793 +1,436 +1,399 +2,022 6. Short-term capital^/ - 31 + 394 - 338 - 775 -1,112 -1,338 - 557 - 361 7. Total capital (4+6) + 730 +1,195 + 745 + 481 + 423 + 758 + 223 94 8. Official Settlements balance (3+7) + 337 + 147 - 333 + 18 + 324 + 60 +1,466 + 4 8^ MEMORANDUM Average exchange rate (U.S. cents per Canadian $) 92 .7 92.7 92.8 92.7 92.8 92.9 95.8 99.5 1/ Seasonally adjusted. The comparable first quarter 1970 results were: trade +691 m, services -385 m, and total current account +306 m. 2/ The capital account and reserve changes are not seasonally adjusted. Hence, those accounts do not balance for the first quarter. 3/ Including errors and omissions. 4/ Excludes SDR allocation. Source: Statistics Canada Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis TABLE 3. CANDIAN BALANCE OF PAYMENTS WITH U. S. (U.S. $ millions) 1964 1965 1966 1967 1968 1969 1970 1971-1.Q. 1. Trade - 749 - 965 - 922 - 527 + 231 + 341 +1,094 + 3061/ 2. Services - 901 - 959 -1,080 - 821 -1,086 -1,122 -1,153 - 429^ 3. Current account (1+2) -1,650 -1,924 -2,002 -1,348 - 855 - 781 59 - 122—^ 4. Long-term capital + 939 +1,024 +1,236 +1,153 +1,052 +1,491 + 918 n.a. 5. Current account plus long-term capital (3+4) - 711 - 900 - 766 - 195 + 197 + 710 + 859 6. Short-term capital + 578 - 619 - 394 - 878 -1,179 - 502 - 233 n.a. 7. Total capital (4+6) +1,517 + 405 + 842 + 275 - 126 + 989 + 685 n.a. 8. Overall balance (3+7) - 133 -1,519 -1,160 -1,073 - 981 + 208 + 626 n.a. MEMORANDUM Average exchange rate (U.S. cents per Canadian $) 92.7 92.7 92.8 92.7 92.8 92.9 95.8 99.5 1/ Seasonally adjusted. The comparable first quarter 1970 results were: trade +$163 m, services -$414 m, current account -$251 m. Source: Statistics Canada Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis TABLE 4. CANADA: NET NEW BOND ISSUES (Par Values, in Canadian $ Millions) Payable in Other non- Canadian Total Canadian $ U.S. $ Currencies 1965 2.3 1.6 0.7 1966 3.4 2.4 1.0 1967 4.1 3.3 0.7 0.1 1968 4.3 2.9 1.0 0.4 1969 3.5 2.0 0.9 0.6 1970 5.0 4.4 0.6 1970, Jan.-June 1.3 0.9 0.4 1971, Jan.-June 2.8 2.6 0.2 Source: Bank of Canada, Statistical Summary, August 1971. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Andrew F. Brimmer (1971, September 22). Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/speech_19710923_brimmer

@misc{wtfs_speech_19710923_brimmer,
  author = {Andrew F. Brimmer},
  title = {Speech},
  year = {1971},
  month = {Sep},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/speech_19710923_brimmer},
  note = {Retrieved via When the Fed Speaks corpus}
}