Evening star., 1961-02-06

nee OF payments OF the UTt1ted
the developing countries must
be increased We cannot
strengthen our balance Of pay
ments at the expense Of the
developing countries without
incurring even greater dangers
to our national security.
6. The United States must
take the lead in harmonizing
the financial and economic pol
icies for growth and stability Of
those induStrialized nations Of
the world whose economic be-
havior significantly influences
the course Of the world econ
omy and the trend Of interna-
tional payments.
To carry forward these poll
cieS propose q program for
action, which may be divided
into two parts. The first part
describes those measures which
will improve domestic mone4
tary arrange EN- ents and
strengthen international co-op-
Grafton in economic and none
tary policy. These measures win
help us better to meet short
term demands on reserves such
as those of recent years. The
measures in the second group
are designed to correct the per-
sisting basic deficit in our bal
ance Of payments.
1. MEASURES TO EASE
THE SHORT-TERM DEMAND
PROBLEM.
1. Measures to Improve In
ternatiOnal Monetary InstItu-
tons
Increasing international
monetary reserves will be re-
quired to support the ever
growing volume of trade, serv-
ices and capital movements
among the countries of the
free world. Until now the free
nations have relied upon in
creased gold production and
continued growth in holdings
Of dollars and pounds sterling.
In the future, it may not al
ways be desirable or appropri-
ate to rely entirely on these
sources. We must now, in CO.
operation with other lending
countries, begin to consider
ways In which international
monetary institutions - espe-
cially the International None
tary Fund-can be strength
ened and more effectively util-
lied, both in furnishing needed
increases in reserves, and In
providing the flexibility re-
quired to support q healthy
and growing world economy.
am therefore directing that
studies to this end be initiated
promptly by the Secretary OF
the Treasury.
! 2. Use Of United States
Drawing Rights In the Inter-
national Monetary Fund
The United States has never
made use Of Its drawing rights
under the International Mon
etary Fund to meet deficits in
its balance Of payments. II
land when appropriate, these
rights should and will be ex-
efciSed within the framework
OF fund policies. The United
States will also support con-
tinued efforts in the fund tt
facilitate drawings by other
members in the currencies OF
industrialized countries whose
payments positions are in sur
plus and whose reserves are
large. This will help to reduce
the burden now borne by the
dollar.
3. Special Interest Rates foI
Dollar Holdings by Foreign
Governments and Monetary
Authorities.
(a) The Federal Reserve Act
should now be amended to per.
init the Federal Reserve Sys.
tenn to establish separate max.
ina for rates Of interest paic
by member banks on time anC
savings deposits held in thi.
country by foreign government.
. or monetary authorities (Sec.
ton 10. paragraph 1N. Thi!
aut h ority, when exercised
would enable American bank.
to make a maximum competi'
tive effort to attract and hole
dollar balances which nigh
otherwise be converted int
gold. At the same time domes.
tic rates. when desirable fol
reasons Of domestic policy
could be held at a lower level
I will shortly send to the Con
gress a draft Of the needed leg.
islation.
(b) I have directed the Sec.
retary Of the Treasury to use
whenever 1t appears desirable
the authority already extended
to him by the Second Liberty
Bond Act to issue securities, a
special rates of interest, TO
subscription and holding ex
clusively by foreign govern
ments or monetary authorities
: The exercise of this authorit,
. could provide an additional in
+. ducement to hold foreign Off
cial balances in dollars.
(c) AS a final means Of hold
ing or attracting foreign dol
, lars, Congress should enact
measure designed to unity tn
, tax treatment accorded tn
earning assets Of foreign cen
!, tral banks. At present, incom
derived by foreign centrs
E banks of issue from banker
acceptances and bank deposit
is exempt from tax under sec
!. ton 861 Of the Code. Incom
/ from United States Govern
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