BANK FOR INTERNATIONAL SETTLEMENTS THIRTEENTH ANNUAL REPORT 1st APRIL 1942 —31st MARCH 1943 BASLE Autumn 1943 TABLE OF CONTENTS Page I. Introduction 5 II. Exchange Rates, Foreign Trade and Commodity Prices: (1) Exchange Rates 39 (2) Foreign Trade 60 (3) Price Movements . 83 III. Production and Movements of Gold: (1) Supply of Gold 113 (2) Movements of Gold 118 IV. Lend-Lease, British Disinvestment and European Clearings 132 V. Government Finance, Money and Capital Markets and the Stock Exchanges: (1) Government Finance, Money and Capital Markets 170 (2) Share Markets 280 VI. Central Banking and Currency Developments 291 VII. Current Activities of the Bank 321 VIII. Conclusion 328 ANNEXES I. Balance sheet as at March 31, 1943. II. Profit and Loss Account and Appropriation Account for the financial year ended March 31, 1943. THIRTEENTH ANNUAL REPORT OF THE PRESIDENT OF THE BANK FOR INTERNATIONAL SETTLEMENTS announced at the ANNUAL GENERAL MEETING held at Basle, 16th June 1943. The President has the honour to submit herewith the Annual Report of the Bank for International Settlements for the thirteenth financial year, beginning 1st April 1942 and ending 31st March 1943. The results of the year's business operations are set out in detail in Chapter VII. Net profits, after provision for contingencies, amount to 4,508,953.89 Swiss gold francs. After the allocation to the Legal Reserve that is required by Article 53 of the Statutes, to an amount equal to 5 per cent, of the net profits, i. e. 225,447.69 Swiss gold francs, there remain 4,283,506.20 Swiss gold francs available towards the payment of a dividend. This sum together with the balance in the Dividend Reserve Fund amounting to 1,626,940.33 Swiss gold francs — in all 5,910,446.53 Swiss gold francs — permits the distribution of a dividend of 29.55 Swiss gold francs per share. At the end of the financial year the balance-sheet total was 483.4 million Swiss gold francs, as compared with 476.6 million Swiss gold francs on 31st March 1942. Although the total of the Bank's balance sheet has thus risen slightly, there has again been some curtailment in current business after the substantial reductions which occurred in the first two years of the war. Such operations as are still possible, including the management of the Bank's investments on various markets and certain transactions for the Red Cross, now usually call for much more detailed work than in the past, on account of the great mass of new regulations to which international payments have been subjected and other difficulties which have to be overcome. In its activities, the Bank has continued to adhere to the principles of scrupulous neutrality which it laid down for itself in the autumn of 1939, avoiding all transactions whereby any question could possibly arise of conferring economic or financial advantages on a belligerent nation to the detriment of another. From the very outbreak of hostilities it was generally realised that war in modern conditions demands the utmost effort, both civilian and military, from belligerent nations and that state direction of economic life was involved on a scale surpassing anything known in the past. It would even be an understatement to say that in matters of government control the present war started where the last one left off, since in many fields lacunae which were still embarrassing the administrations of 1918 were this time dealt with immediately the war began, one notable example being the early imposition of exchange control. While the present struggle was thus a total war from its very beginning, with each year that it has been prolonged and with each extension of its compass there has been a further intensification of effort, through which, so to speak, higher and higher degrees of totality have been attained.* In the field of foreign commerce government direction is everywhere supreme, trade being subject to priorities, import and export permits, rationing of foreign exchange and allocation of transport facilities, while premiums and special charges have been introduced to "equalise" prices at home and abroad and thus assist the movement of goods in directions where otherwise the price differential would be prohibitive or would exert an undesirable influence on the price structure. The methods of control are many but the result is one: private business, tied by governmental restrictions, is made to function more and more for official account. Through economic warfare — the blockade, the counter-blockade and all the measures supplementary thereto — the world has become divided into quasi-watertight compartments, with only a few trickles of trade being allowed to pass through the barriers, as, for instance, imports and exports to and from Sweden via Gothenburg and to and from Switzerland via Portuguese, Spanish and Italian ports, these ship- ments requiring permits from the belligerents on both sides. In the winter of 1941-42 the pattern of world trade was suddenly changed in a large measure by the extension of Japanese domination in the south and south-western Pacific. This made it necessary for many countries either to seek alternative sources of supply, for instance in Latin America, or to embark upon the production of substitutes at home; an outstanding example of such production is the manufacture of artificial rubber in the United States at a rate estimated at 250,000 to 275,000 long tons in 1943, compared with peacetime requirements of natural rubber amounting to 410,000 long tons in 1938. Another important change in the international movement of goods has been the increase in lend-lease deliveries, not less than 60 per cent, of the total exports of the United States in 1942 being on lend-lease account. On the other hand, foreign trade inside the continent of Europe showed little change in 1942, credits through the clearing mechanism being on about the same scale as in the previous year. In its economic policy each belligerent country must aim at a maximum utilisation of its human and material resources. Under the influence of cost and price changes in markets still comparatively competitive, the man- power of a nation could in peacetime be left more or less free to distribute * The war has brought the suppression of a number of statistical series, in particular those relating to commodity stocks and other matters on which information might be considered of value to the enemy; and, for much the same reasons, the greater part of the new material collected for official purposes connected with the war effort has not been published. But a considerable volume of reliable statistical material has remained, although not always easily available: especially as regards monetary and financial developments is much of the information normally received in peacetime still to hand; indeed, in a number of cases, regular publication has been resumed after an initial suspension, e. g. of certain central-bank returns. y itself among the various occupations open to it; but, in time of war, the government itself must necessarily determine what groups have to be drafted for service in the armed forces and it must further try to prevent, or at least to limit, the rise in prices which would normally be the result of its own increased demand for goods and services. In some countries higher prices and pay have no doubt been helpful factors in the transformation of production, including the regrouping of labour; but, with the intensifi- cation of the war effort, the driving force has increasingly been supplied by government direction, exerting its influence through a whole series of economic measures: • (i) The mobilisation of the last reserves of manpower includes (in addition to the use of foreign workers, which has been important in Germany), the reabsorption of the unemployed, the lengthening of hours of work, the postponement of retirement, the earlier active employment of young people and — as not the least important measure — the greater empjoyment of women in all kinds of occupations. Experience in more than one industry has shown that women often equal men in efficiency and sometimes even surpass them. In Germany, where 50 per cent, more women were working in trade and industry in 1939 than in 1932, the war at first brought a decline in the employment of women (mainly as a result of the many marriages) ; but the figure began to rise again in 1940, so that by 1942 1.3 million more women were employed than at the outbreak of war (and early in 1943 there was a further enlistment in order to set more men free for active service or armament production). By the end of 1942 foreign workers (including prisoners of war) represented 17 per cent, of those employed in industry in Germany, it being estimated that the effective yield of foreign labour was on an average about 80 per cent, of that of German workers. That in times of heavy rearmament and war there is an urgent need for manpower is but another way of stating the fact that at such times unemployment has ceased to be a problem. In the United States, for instance, there were about 7 million more people employed in the autumn of 1942 than in the summer of 1939 and during the same interval the actual working week in manufacturing establishments had been lengthened by about one-seventh. In this as in other countries heavy new orders by the state, financed to the extent of one-half or more by additions to the public debt, provide a definite outlet for productive capacity; commodity prices — whether strictly controlled or not — are fixed so as to allow full remuneration of costs ; and the redundant purchasing power in the hands of the public makes it possible to sell almost anything, while the standard of living in civilian life is necessarily pressed down.