BANK FOR INTERNATIONAL SETTLEMENTS SEVENTEENTH ANNUAL REPORT 1st APRIL 1946—31st MARCH 1947 BASLE 16th June 1947 TABLE OF CONTENTS Page I. Introductory Remarks 5 II. Transition from War to Peace Economy 9 Budget situation (p. 9), resources for productive investments (p. 9), subsidies (p. 10), nationalisations (p. 11), financial accounts (p. 11), foreign credits and foreign aid (p. 13)., em- ployment policy (p. 14), shortage of consumption goods (p. 15), wage increases (p. 15), price control (p. 16), wheat situation (p. I"]), meat, fat etc. (p. 18), industrial production (p. 20 ), coal , situation (p. 22), over-employment (p. 25) . III. Price Movements 28 Types of movement (p. 28), prices in Greece (p. 28), Hungary (p. 28), Roumania (p. 29), China (p. 29), Poland (p. 30), Italy (p. 30), France (p. 31), Finland (p. 32), Bulgaria (p. 32), Belgium (p. 32), Czechoslovakia (p. 32), Holland (p. 32), Turkey (p. 32), United States (p. 33), Great Britain (p. 35), Germany (p. 36), Austria (p. 37), wartime shortages (p. 38), general observations (p. 39) IV. Recovery of Foreign Trade .................. 41 Volume of world trade (p. 41), foreign trade in the United States (p. 42), in Canada (p. 45), Great Britain (p. 46), Denmark (p. 49), Norway (p. 49), Sweden (p. 5°), Finland (p. 50), Belgium (p. 51), Holland (p. 51), Switzerland (p. 52), Portugal (p. 52), France (p. 52), Italy (p. 54), Germany (p. 55), Poland (p. 5&), Czechoslovakia (p. 57), Austria (p. 58), Hungary (p. 58), Roumania (p. 59), Yugoslavia (p. 59), Bulgaria (p. 59), Greecç (p. 59); Turkey (p. 60), U.S.S.R. (p. 60),• Japan (p. 62), India (P- 63), general observations (p. 64) V. Foreign Exchange Rates 69 Official ' alterations (p. 69), exchange situation in Canada (p. 69), Sweden (p. 69), Greece (p. 70), Roumania (p. 70), Bulgaria (p. 71), Turkey (p. 71), Hungary (p. 71), Italy /p. 71), Switzerland (p. 73), payments agreements (p. 75), articles of agreement for the International Monetary Fund (p. 76), Anglo- American financial agreement (p. 77), British external finance (p. 78), Anglo - Italian Sterling Payment Agreement (p. 79), market rates for foreign bank-notes (p. 82), general observations (P. 80) VI. Production and Movements of Gold ... ........ 85 Output of gold (p. 85), costs of production (p. 86), gold reserves (p. 89), hoarding of gold (p. 93), quotations of gold coins (p, 94) , general observations „ (p. 94) Page VII. Post-War Settlements and New Foreign Lending 97 Foreign assistance granted during the war . 97 Settlements of Lend-lease and mutual aid (p. 97), United States Lend-lease and foreign surplus disposal (p. 98), Canadian mutual aid (p. IOJ), British mutual aid (p.- 104); accumulated sterling balances (p. 104), United Kingdom's external liabilities (p. 106), sterling balances of certain sterling-area countries (p. no), Inter- national Red Cross (p. 112), UNRRA (p. 114), financing of the occupation of Germany and Japan (p. New Post-War Foreign Lending 118 Governments of the United States (p. 119), Canada (p. 122), United Kingdom (p. 122), Sweden (p. 122), Argentina (p. 124) Monetary and payments agreements (p. 125), monetary credits of the United Kingdom (p. 125), Sweden (p. 126), Switzerland (p. 126), France (p. 127), Holland (p. 127), Belgium (p. 128), summary table of monetary credits (p. 128), capital markets (p. 129), bank credits (p: 129), export credit insurance (p. 132) General observations 135 Summary table of international post-war loans and credits (p. 136), decline of dollar balances (p. 139), service of dollar loans (p. 140), final remarks (p. 142) VIII. Internal Credit Conditions 143 » Discount rates of central banks (p. 143), note circulations (p. 151) IX. National Economic Plans in Europe 153 X. Current Activities of the Bank 157 Operations of the Banking Department (p. 157), Trustee and Agency Functions of the Bank (p. 163), Financial Results (p. 163), Changes in the Board of Directors (p. 164) XI. Conclusion 165 Schedule of Par Values announced by the International Monetary Fund (p. 169), Statement (p. 172) ANNEXES 1. Balance Sheet as at March 31, 1947. 2. Profit and Loss Account for the financial year ended March 31, 1947. SEVENTEENTH ANNUAL REPORT submitted to the ANNUAL GENERAL MEETING of the BANK FOR INTERNATIONAL SETTLEMENTS held at Basle, 16th June 1947. Gentlemen, I have the honour to submit herewith the Annual Report of the Bank for International Settlements for the seventeenth financial year, beginning ist April 1946 and ending 31st March 1947. The results of the year's business operations are set out in detail in the section from page 157 to page 164 together with a general review of the current activities of the Bank and an analysis of the balance sheet as at 31st March 1947. The financial year closed with a surplus of 692,787.01 Swiss gold fcancs which has been transferred to the Special Suspense Account established in 1945. This account, to which the surplus of the financial year 1944-45 was credited and the deficit of the following financial year 1945-46, amounting to 616,581.45 Swiss gold francs, was charged, is thus back at a figure slightly exceeding the amount initially credited to it. As may.. be seen from the section dealing with the current activities of the Bank, equilibrium between the Bank's current revenue and expenditure was progressively re-established in the course of the financial year. The Bank's financial year 1946-47 has seen some important innovations in the institutional framework of the world's monetary system, for it was in that period that the International Monetary Fund and the International Bank for Reconstruction and Development reached the stage at which opera- tions could begin. The first task of the International Monetary Fund was to fix the par values of the various currencies: on 18th December 1946, the Managing Director of the Fund published a schedule O of the par values that had been accepted as initial rates in accordance with the articles of the Agreement setting up the Fund. In an official statement (a) issued on the same date it was, however, explained that: "This is the first time that a large number of (1) The schedule is reproduced on page 169. (2) See page 172. • — 6 - nations have submitted their exchange rates to consideration by an international organisation and thus a new phase of international monetary cooperation has begun. The major significance of the present step is not in the particular rates of exchange which are announced, but in the fact that the participating nations have now fully established a régime wherein they are pledged to promote exchange stability, to make no changes in the par values of their currencies except, in accordance with the Fund Agreement, and to . assist each other in attaining the general objectives of the Fund." Notwithstanding the fact that at the present exchange rates there were, in a number of cases, substantial disparities between the price levels of the countries concerned, the Fund had reached the conclusion that the proper course of action was to accept as initial par values the existing rates of exchange, ist March 1947 was fixed as the date on which the Fund would begin exchange transactions ; a statement by the Managing Director, however, carried a warning to the effect that limitations on the amounts which countries might borrow would be strictly enforced to prevent any country, or a few countries, from taking more than a fair share of scarce currencies. The International Bank for Reconstruction and Development likewise proceeded with its organisation in the course of 1946 and it had, in particular, to attack the problem of the best way to raise capital on the American market in order to secure a sufficiency of loanable funds. The objective has been to establish an increasingly close contact not only with bodies responsible to the respective governments, but also with the money and capital markets through which current savings are becoming available, such contact being indispensable for. an institution which proposes to undertake a substantial volume of international lending. For the markets themselves it is equally a matter of importance that close contact should be maintained with the monetary authorities either directly or through competent international institutions, this being - especially the case in a period when, besides the normal risks of foreign lending, the possibility of transfer, in many countries, depends on decisions taken by exchange controls. These problems had already been discussed during the war, and it was then foreseen that in the period following the end of hostilities a system of humanitarian aid would first be required. Such aid has, in fact, been pro- vided through the United Nations Relief and Rehabilitation Administration (UNRRA) and also through other relief organisations or grants by different governments. It was not to be expected, however, that, in a period of great insecurity, private lending could immediately step in and meet the widespread need for access " to foreign funds. It, therefore, seemed certain that some official lending would have to be arranged, the most typical examples of such lending being the United States line of credit to the United Kingdom and the loans granted by the U.S. Export-Import Bank. There have, however, been other forms of post-war official lending, the first in order of time being the reciprocal credits extended through various European payments and monetary agreements. But provision of funds from the Treasuries of individual governments could not continue indefinitely as the only source of lending and other methods, therefore, were required. It was partly with this end in view that the two new institutions were organised, the International Monetary Fund to furnish short-term accommodation and the International Bank for Reconstruction and Development to assist its members to obtain long-term funds.