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FEDERAL RESERVE BANK OF NEW YORK 147 Treasury and Federal Reserve Foreign Exchange Operations* By CHARLESA. COOMBS As of early Match 1963 the Federal Reserve reciprocal foreign currency bonds outstanding at the end of August credit, or "swap", network covered ten foreign central 1963, $50 million has in one instance been employed to banks, plus the Bank for International Settlements, and refund Federal Reserve swap drawings into medium-term involved a total amount of $1,100 million. In May 1963 obligations of the Treasury. the reciprocal currency agreement with the Bank of Eng- land was increased from $50 million to $500 million, BELGIAN FRANCS thereby raising the total of these short-term swap lines to $1,550 million. Unlike the other swap arrangements, which are now From the first use of the Federal Reserve swap program on a stand-by basis, the Federal Reserve-National Bank in March 1962 through the end of August 1963, total of Belgium swap remains fully drawn, as it has been from drawings on these swap lines by the Federal Reserve and the beginning. The swap thus provides the National Bank other central banks amounted to $978 million. Over the of Belgium with a supplementary dollar balance of $50 same period, total repayments of $876 million were made, million and the Federal Reserve with an equivalent bal- each generally within six months from the date of the ance of 2½ billion Belgian francs. drawing. The net debtor position of the Federal Reserve During the period under review, disbursements of the under all these agreements combined was $92 million as of the end of August 1963, compared with $65 million at the end of February 1963. During the first week of Sep- tember, the net debtor position of the Federal Reserve labia I was reduced to $73 million. FEflERAL RESERVERECIPROCAL CURRENCY AGREEMENTS At the end of Endof Auguat 1963 February 1963, there were outstanding ____________ ____________ ____________ — United States issues of $481 million in Treasury foreign Torn Othar plJ13rto atrumsnt ortat.tit (oforiarnal bonds and of $48 million in months) currency foreign currency of dollori) OUrftmInt) certificates. I)uring the next six months, all of thc foreign Lff1 currency certificate issues were converted into foreign cur- Bank of France 100 1962: March 1 3 rency bonds, while additional bonds were issued in the Rank of En.glandf 300 May51 12 amount of $177 million. Of this total of $705 million of Ncthcrtanda Bank 50 June 13 3 National Bank of Balgium 5') Junc 20 6 Bank of Canada 25') Junc26 3 Rank for InternatIonal • This third joint interim report reflects the United States Setiemcnt* 101) July 16 3 Treasury-Federal Reserve policy of making available additional Swlas National flank I(S) July 16 S information on foreign exchange operations from time to time. Gennan Federal 150 2 The Federal Reserve Bank of New York acts as agent for both Bankl Auu 3 the Treasury and the Federal Open Market Committee of the Bank of Ititlyll 1)0 October lb 3 Federal Reserve System in thc conduct of foreign exchange operations. Austrian National Bank 50 Octobcf25 3 This report was prepared by Charles A. Coombs, Vice President Bank of Sweden 50 1963: January 17 3 in charge of the Foreign Department of the New York Reserve Bank and Special Manager, System Open Market Account. It Total for aU banka 1.350 covers the period March through August 1963. Previous reports covering operations during March 1961-August 1962 and Septem- • Increased from $30 million to $100 million on March 4 1963. ber 1962-February 1963 appeared in the September 1962 and t I.tcreaaed from $50 million to $500million on MaY 29. 1963. March 1963 fln Swiss franca. - issues of the Federal Reserve Bulletin and in the Increased from $50 million to $150 million on January I?, l963. October 1962 and March 1963 issues of this Monthly Review. L lncrcaocd from $50 million to $150 million on Dccembce 6, 1962. 148 MONTHLY REVIEW, OCTOBER 1963 reciprocal balances created by the swap were made by TaM. In both for combined total of $25 million FEDERAL RESERVE AND NATIONAL BANK OP BELGIUM parties a equiva- RECIPROCAL CURRLNCY AGREEMENT lent. Theseexchange operations were quickly reversed,as Through August 1963 the payments balance of Belgium oscillated around cqui- tiojins Date Di,bwsentz balnruss librium. - Rigurchaus —. EedaIRaeerv. Operolloar to Beiglan Pruucg In May 1963 the United Ststes Treasury issued to the In millions of $ equivalent National Bank of Belgium 24-month bonds denominated 1962: June 20 — — 50.0 in Belgian francs in the amount of $30 million equivalent. August 7 10.5 — 39.5 Scptentber 17-21.... — 10.5 50.0 These bond issues were timed to coincide with Belgian Odobur II 10.0 — 40.0 November 19 . 10.0 — 30.0 Government borrowings of dollars in London and New December 19 — 5.0 35.0 York, which would otherwise have resulted in an accrual 1963: January 2-4 — 144 50.0 January 31 5.0 — 45.0 of surplus dollars on the books of the National Bank of February 11 — 5.0 50.0 AprIl 2 5.0 43.0 Belgium. These dollars were immediately absorbed, how- June 11 ..... — 5.0 50.0 ever, by the Treasury with the Belgian franc proceeds of Ndonal Bank of Belgium Operatluus hi Uniled Slates Dollars the bond issues. Inmilhioni Over the past year, paymcnts swings in the Belgian dol- lar million been financed 1963: January 16 5.0 — 45.0 position totaling $175 have January 31 5.0 50.0 February 21 10.0 — 40.0 through the Federal Reserve swap facility and the United March II 10.0 — 30.0 States issue of franc dis- March 21. Treasury Belgian bonds, thereby ApdI 2 20.1) 50.0 with the use of reserves Junc 27 10.0 — 40.0 pensing existing by an equivalent August 2 5.0 45.0 amount. Although limited in scale, these coordinated ex- change operations by the United States and Belgian Closing balance Includes Interest earnings. exchange authorities provide a clear illustration of the technical feasibility of readily financing, through the flexible use of the international financial machinery that has recently been developed, the payments swings that in- Treasury. Renewed buying pressure on the guilder devel- evitably accompany even a balanced growth of trade and oped, however, in mid-March 1963 and continued for payments. over two months thereafter. Part of the dollar influx into the Netherlands apparently originated in foreign direct NETHERLANDSGUILOERS investment. But a more important cause appeared to be a gradual tightening of money market conditions in the From mid-November1962 throughFebruary 1963 the Netherlands. doilar-guilder market remained quict, with no need for in- As Dutch commercial banks began to be squcczcd for tervention by the Federal Reserve Bank of New York for liquidity, the call money rate in the Netherlands rose either the Federal Reserve System or the United States sharply from 1 per cent to 3 per cent, and rates on Treas- ury paper also advanced. To ease the pressure on the banks, the Netherlands Bank in March agreed to accept certain Netherlands Treasury paper under repurchase Table U agreements and, for the monthly reserve period ended UNITED STATES TREASURY FOREIGN CURRENCY BONDS Outsbndlng at the end of August 1963 April 21, reduced the banks' cash reserve requirements by one percentage point to 4 per cent. Nevertheless, the Amount 0rI;lnsI Isseit (Inmilllonu maturities cwrvsey tightness continued, and Dutch commercial banks repa- $equivalent) (Inmantles) triated short-term investments from abroad in order to bolster their strained domestic The German Federal Bank 273 131024 (ierm.an mark liquidity positions. return flow of short-term funds was reflected both in a Bank of Italy 200 13 to24 Italian tira of the rate and in a Swiss Confederation 127 15*0 18 Swiss franc strengthening spot guilder narrowing of the forward Swiss National Bank 48 13 io 18 Swissfranc guilder premium. it seemed to National Bank of 30 24 franc in these circumstances, appropriate pre- Belgium.. Belgian bank the National Bank 25 18 Austrian scisill vent through central swap operations potential Auufflan lag of such on the Netherlands Bank. Total 705 unli)adlng repatriations from 10 the Accordingly, April through May 28, Federal FEDERAL RESERVE BAK OF NEW YORK 149 Reserve gradually disbursed a total of $44 million eqwva- count at the Federal Reserve under the initial swap draw. lent in guilders acquired through drawings upon the $50 ing. Despite sizable intervention by the Bank of England, million swap line with the Netherlands Bank. The great the sterling rate gradually declined during February and bulk of these disbursements was effected through exchange March and slipped below par. On March 29 the Federal market operations, with the dual purpose of preventing Reserve Bank of New York purchased in the market for the spot rate for the dollar from declining to the floor and United States Treasury account million, equivalent to of simultaneously absorbing dollars that would otherwise $8.4 million, thereby reinforcing the support operations have flowed to the Netherlands Bank. of the Bank of England. By early June the tide began to turn, as the Netherlands The Bank of England might have readily drawn on the Bank again reduced the commercial banks' cash reserve remaining $25 million of the $50 million swap line, which requirements by one percentage point to 3 per cent and the Federal Reserve was prepared to increase, but the money market conditions eased in the Netherlands. With nature of the speculative selling of sterling suggested to the decline in Dutch money rates and the strengthening of the Bank of England that recourse to other short-term their liquidity positions, Dutch commercial banks resumed facilities would be more appropriate.

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