assets of American banks, the net outward movement of short-term funds during the final quarter alone was $650,000,000. It constituted one of the heaviest withdrawals of short-term funds from the United States ever experienced in so short a period of time and was the first heavy withdrawal since the banking crisis of February-March, 1933. Just before this outward movement, reported short-term foreign liabilities of American banks stood, on September 29, at $2,305,000,000. This was the highest total since England's suspension of gold payments in 1931 became the signal for the first of 3 foreign "runs" on American banks which occurred during the 16-month period between suspension in England and the banking crisis of February-March, 1933, in the United States.

International security transactions resulted in a net inflow of $522,000,000 in 1937. Net purchases of American securities by foreigners accounted for $245,000,000 of this amount, while most of the remainder represented net purchases of foreign securities for redemption, sinking-fund purposes, repatriation by issuer, or investment. The gross volume of transactions in domestic securities during 1937 was almost as large as in 1936, although net purchases were only 40 percent as large. Approximately two-thirds of these net purchases were made during the first quarter of the year when stock prices were advancing rapidly. The subsequent developments which encouraged the sale of foreign gold for conversion into bank balances constituted a natural deterrent to share investment, with the result that there was some net foreign selling of domestic securities during the latter part of April and the early part of May, and again for a few weeks after midSeptember; but for the most part foreigners continued to acquire American securities in moderate amounts.

Net purchases of foreign securities by foreigners were chiefly concentrated in the second half of the year. At four different intervals during the August-November period substantial purchases of foreign securities on Latin American account featured the inflow of "longterm" capital funds-purchases which were identified with Argentine redemption and conversion operations and which were anticipated during the first half of the year by the marked increase in "Latin American" dollar balances. In the course of these operations, which began in 1936, three Argentine refunding issues were offered in the United States. With the proceeds of these loans and with other funds remitted by the Argentine Government, 10 outstanding dollar issues amounting to $230,000,000 were retired in 1937 at par. Refunding issues were also offered in the United States during the year by Canada and Norway. Net repurchases of foreign securities by foreigners that is, repatriations (excluding redemption operations)—— continued in moderate volume through the year.

DANIEL C. ROPER,
Secretary of Commerce.

JUNE 1938.

PREFACE

This is the sixteenth consecutive annual report on the balance of international payments of the United States prepared by the Bureau of Foreign and Domestic Commerce. This annual study represents a complete compilation of all classes of international commercial and financial transactions between residents of the United States, on the one hand, and residents of all foreign countries, on the other. view of the wide scope of the report, its implications extend inevitably into the wider fields of national and international economic policy.

In

In view of international developments during recent years and a steadily widening interest in special phases of our international activities (whether as exporters, bankers, investors, travelers, missionaries, or students) the Finance Division initiated late in 1934 a series of special surveys designed to provide more satisfactory bases for the computation of the annual estimates. The results of three of these special studies have thus far been published. Prior to the recent release of the bulletin, American Direct Investments in Foreign Countries, 1936, prepared by Dr. Paul D. Dickens, the Bureau published Trade Information Bulletin No. 834, Insurance Transactions in the Balance of International Payments of the United States, 1919-35, by Dr. August Maffry and Foreign Investments in the United States, a pioneer study which comprises the research contributions of various members of the Finance Division.

Special studies are also in progress on United States tourist payments to foreigners; remittances and institutional contributions in the balance of payments; the international creditor-debtor status of the United States; and a syllabus on the literature in international investments and balances of payments. The results of a special survey relating to the repatriation of foreign dollar bonds appear in the text of the present bulletin.

The compilation and analysis of the year's balance of international payments were made by Messrs. Maffry and Dickens. The former prepared the text of the introductory sections and those parts relating to the trade and service transactions (exclusive of interest and dividend items) and gold and silver transactions; the latter contributed the sections relating to international investments, including international capital movements, foreign dollar bond repatriations, United States creditor-debtor status, and interest and dividend items. As in other recent years the bulletin was prepared under the general direction of Amos E. Taylor, Assistant Chief of the Finance Division.

JUNE 1938.

XII

ALEXANDER V. DYE, Director, Bureau of Foreign and Domestic Commerce.

THE BALANCE OF INTERNATIONAL PAYMENTS OF

THE UNITED STATES IN 1937

INTRODUCTION

SUMMARY STATEMENT

The balance of international payments of a country consists of the payments made, within a stated period of time, between residents of that country and residents of foreign countries. It may be defined in a statistical sense as an itemized account of transactions involving receipts from foreigners on the one hand and payments to foreigners on the other. Since the former relate to the international income of a country, they are called "credits," and, since the latter relate to international outgo, they are labeled "debits."

In the compilation of the items which enter into a balance-of-payments statement, the fact of residence, rather than nationality, is ruling. Thus, for example, the expenditures of alien residents of the United States visiting in foreign countries are considered as payments by "Americans" to foreigners, and income derived from investments in this country by United States citizens permanently residing abroad is similarly classified. Again, the United States branches and affiliates of foreign corporations are treated, from a balance-of-payments point of view, as domestic entities and the foreign subsidiaries of American corporations as foreign entities-in either case upon the basis of domicile. This procedure relates directly to one of the basic purposes of the balance-of-payments schedules, which are designed to show the sources of the supply of foreign currencies, or of foreign exchange, arising out of claims against foreigners and the nature of the demand for foreign currencies from persons with payments to make abroad. Conversely, the balance of payments of the United States indicates the sources of the supply of dollars, or of dollar exchange, arising out of claims against this country by foreigners and the nature of the demand for dollar exchange from foreigners with commitments to meet in the United States.

In table 1 is given, in summary form, the balance of international payments of the United States in 1937, with comparative data for 1936. Figure 1 shows net items for the years 1934-37.2

I The balance-of-payments area of the United States is coterminous with the areas to which the official statistics of merchandise export and import trade apply. These areas include continental United States, Alaska, Hawaii, Puerto Rico, and, since Jan. 1, 1935, the Virgin Islands. Areas excluded are the Philippines and the Panama Canal Zone. For balance-of-payments purposes the latter are considered as foreign

countries.

Since the data shown in fig. 1 represent net receipts and net payments, the length of the bars bears no necessary relation to the comparative gross dollar volume of international transactions in the several years.

1

Table 1.-Balance of International Payments of the United States, 1936-37

1 The item consists roughly of 3 parts: (1) commodity exports and imports which are omitted entirely from the official trade figures (e. g., sale of ships, bunker-fuel purchases and sales, etc.); (2) exports or imports which are partly omitted from official trade data (e. g., unrecorded parcel-post shipments, goods smuggled into the country, etc.); (3) corrections of certain recorded trade figures for balance-of-payments purposes (e. g., allowances for possible overvaluations or undervaluations in export and import entries).

2 Less than $500,000.

Capital items are viewed as "exports" and "imports" of evidences of indebtedness.

4 The item takes account of all reported security movements between the United States and foreign countries and includes international sales and purchases of long-term issues, new underwriting, sales and purchases of properties not represented by security issues, and security transfers resulting from redemption and sinking-fund operations.

See section, "Short-Term Capital Movements."

See section, "Movements of Paper Currency."

The item includes, in addition to possible errors and omissions in the estimated items, unreported stabilization-fund operations and other transactions not exactly reflected for balance-of-payments purposes in the reported figures. Since the active portion of the stabilization fund is limited to $200,000,000, fund operations would not affect the size of the residual either way by more than this amount.

Broadly speaking, a balance of payments comprises only cash transactions and transactions involving the purchase or sale of foreign exchange. In practice, however, this rule cannot be literally construed nor rigorously applied. For example, shipments of goods by charitable organizations enter the merchandise account (as credits), although no payments are expected from the foreign recipients. Since exports of this type are not separable in the trade returns, they are counterbalanced by including noncash institutional gifts in the category of

7

contributions (as debits). Other merchandise adjustments entered in the balance-of-payments statement cover allowances for possible undervaluations or overvaluations in import and export declarations. They serve, therefore, only to offset noncash elements in official trade statistics. Imports of certain commodities into the United States, the shippers of which are foreign subsidiaries of American corporations and the consignees of which are the parent companies themselves, may involve no actual purchase of foreign exchange by the importer nor actual delivery of dollars to the exporter. Unlike the preceding examples, however, there is in this case a financial counterpart which may consist of appropriate entries on the books of the parent and subsidiary companies. If definite identification were possible, imports

Figure 1.-Balance of international payments of the United States, 1934-37.

DD.9684

of this character would be offset by noncash, credit entries.3 Of the same technical significance are exports and imports of merchandise financed by acceptance credits, for which the respective countervailing entries are an increase in outstanding short-term claims upon foreigners (a debit) and an increase in outstanding foreign claims upon this country (a credit).

Other examples of transactions which require no exchange operations but which are by definition embraced in the balance-of-payments account would include the establishment of dollar balances with the

3 Since the value of such shipments would appear on the books of the parent companies as amounts owed by them to their foreign subsidiaries and, hence, as deductions from their net investments in foreign countries, the offsetting entries might consist of decreases in American direct investments abroad. For perhaps equally valid reasons the adjustment might be made in the estimated return on direct investments in foreign countries, for the imports in question partake of the nature both of return on investment and of capital depletion.