while the Standstill credits probably yielded between 2 and 3 percent. Interest charged by brokers on debit balances was about as high. The large assets in England and Canada probably earned very little, while those in Latin America and the Far East may have received moderate returns. Third, the various types of assets followed different trendsdeposits and loans to foreign banks increased, while acceptances, brokers' debit balances, and other short-term investments decreased. The estimate of $10,000,000 for earnings on United States short-term investments in foreign countries is the result of applying a rate of slightly less than 1% percent to average outstanding assets of $750,000,000.

PAYMENTS TO FOREIGNERS ON INVESTMENTS IN THE UNITED STATES

The estimated payments to foreigners on their investments in the United States are divided into five parts: (1) interest on foreign-held American corporate bonds; (2) dividends on foreign-held American common and preferred stocks; (3) income to foreigners from direct investments in the United States; (4) income to foreigners from other long-term investments in the United States; and (5) earnings on foreign-held short-term investments in the United States. The total estimated values of these respective classes of foreign investments are shown in tables 24 and 26. The estimated returns from these various classes of investment were summarized in table 17.

PAYMENTS TO FOREIGNERS ON LONG-TERM INVESTMENTS

Total payments to foreigners on long-term investments in the United States during 1937 are estimated at $277,000,000. In 1936 the corresponding figure was $237,000,000 and, in 1935, $170,000,000. About 70 percent of the increase since 1935 is accounted for by dividends on stocks which in 1935 accounted for approximately half of total payments and in 1937 for almost 58 percent (see fig. 7).

The general survey of all foreign investments in the United States,62 which was published in June 1937, provided the basis for reasonably accurate estimates of income payments to foreigners. Although the detailed data in that study related to 1934, the estimates have been kept up to date by means of extensive sample data obtained from the same sources as the original data. Furthermore, it has been possible to check the accuracy of some of the later estimates by reference to certain unpublished sources.

Data regarding the foreign holdings of 260 common-stock issues and 141 preferred-stock issues, as reported by the corporations, indicated a 25 percent increase over 1936 in common dividends paid to foreigners. and almost no change in preferred dividends (see table 25). Using those data as an index, it is estimated that dividends on common stock in 1937 amounted to $116,000,000 and on preferred stock to $39,000,000, a total of $155,000,000. The increase in common dividends paid to foreigners is not a measure of the increased rate of payment-it is an index of total payments on total holdings. Foreign holdings of common shares increased 8 percent, while preferred shares decreased 5 percent-showing that the dividend rates per share for

Department of Commerce, Bureau of Foreign and Domestic Commerce, Foreign Investments in the United States, Government Printing Office, 1937.

common shares increased considerably in 1937 over 1936 and for preferred dividends only slightly.

There was a significant difference between the trends in foreign holdings of New York Stock Exchange and non-New York Stock Exchange common issues. Share holdings of the former issues increased 9 percent, while dividends paid increased 32 percent. Among the non-New York Stock Exchange issues, share holdings decreased 2 percent and dividends paid decreased 18 percent.

Interest payments to foreigners on holdings of American bonds, after allowing for tax deductions, showed no change from the estimate of $22,000,000 which was carried in 1936 and 1935. Estimated income from foreign-owned direct investments in the United States rose about 20 percent from 1936 to $65,000,000 in 1937.63 Income to foreigners from other long-term investments was raised in about the same proportion, from $30,000,000 in 1936 to $35,000,000 in 1937.

PAYMENTS TO FOREIGNERS ON SHORT-TERM INVESTMENTS

Foreign-owned short-term banking assets in the United States increased from $1,530,000,000 at the end of 1936 to $1,766,000,000 at the end of 1937. The largest inflow took place during the second quarter of the year, although the peak of $2,347,000,000 (including brokers' credit balances) occurred at the end of September. From 80 to 85 percent of these foreign assets consisted of deposits. According to the year-end call reports of licensed member banks of the Federal Reserve System, the deposits of foreign banks were almost entirely demand deposits, which under the provisions of the Banking Act of 1933 yielded no interest return. Assuming that other foreign deposits were equally confined to demand deposits, all but about $350,000,000 may be said to have yielded no return.

The remaining $350,000,000 was composed largely of bills and short-term United States Government obligations held for foreign. account, both of which increased greatly over the end of 1936. The prevailing rate on prime bankers' acceptances during 1937 was 0.43 percent and on United States Treasury bills 0.28 percent. Applying these and comparable rates to the assets mentioned above results in an aggregate income of somewhat more than $1,000,000.

POSITION OF UNITED STATES AS CREDITOR AND DEBTOR

The United States occupies a unique position in the field of international investments. It is simultaneously one of the world's largest foreign investors and one of the world's largest debtors. This country's position as creditor and debtor on long- and short-term, excluding the war debts, as of the end of 1937, and the resultant large excess of United States investments abroad over foreign investments in the United States, are briefly summarized below:

The returns to foreign insurance companies on investments in domestic securities and properties are not included herein. These returns are taken into account in the computation of the net movement of insurance funds (see section, "International Insurance Transactions").

Federal Reserve Bulletin, May 1938, p. 390.

This estimated net creditor position of $4,759,000,000 corresponds with the net position as shown by the interest and dividend account. Just as net receipts of interest and dividends do not constitute a sufficient measure of the net creditor position, it is seen that investment estimates are likewise not sufficient. Each type of measure has its defects, although each is useful for particular purposes.

Investment estimates are not completely satisfactory measures because of the varied character and proportions of the assets of which

of

Figure 9.-United States long-term investments in foreign countries, by geographic areas, end of 1930 and 1937. the totals are composed and because it is impossible to value all types on a uniform basis. Direct investments, which are a large part United States assets abroad and only a small part of the foreign assets in this country (see tables 20 and 24), can be estimated only on a book-value basis. United States holdings of foreign bonds are about four times as large as foreign holdings of American bonds and preferred stocks. Both are best valued on the basis of the principal amount of the security. On the other hand, common stocks, which are relatively unimportant among United States investments in foreign countries but which comprise a substantial part of foreign investments in the United States, are carried on a market-value basis. For some purposes market values are desirable, but direct investments cannot be valued on that basis. Excluding direct investments, it is found that the market value of United States long-term foreign assets and liabilities are approximately equal-about $3,000,000,000.

On that basis the net creditor position of this country on long-term account would be determined by the respective estimates of direct investments, a net of $5,195,000,000. Although some of the United States direct investments abroad are in countries with exchange restrictions, on the whole they yielded a higher rate of return than foreign direct investments in this country.

UNITED STATES LONG-TERM INVESTMENTS ABROAD

At the end of 1937 United States long-term investments in foreign countries totaled $11,074,000,000. This represented a decline of about 27 percent from the peak of $15,170,000,000 reached at the end of 1930 (see fig. 9). Reductions have taken place each year since 1930 among the portfolio investments (primarily in holdings of foreign dollar bonds) as a result of ordinary sinking-fund purchases, the redemption of entire issues, and continued net purchases in small blocks by foreign investors and by the issuers. Direct investments abroad have also tended to decline as a result of the effects of the depression on business enterprises and of sales to foreigners. The combined effect of those two factors was more than sufficient to offset the new foreign investments.65 The more rapid decline in portfolio investments is clearly demonstrated by the fact that they comprised 47.5 percent of total long-term investments abroad at the end of 1930 and only 37.4 percent at the end of 1937.

Direct-investment estimates are based on the book values of the foreign subsidiary or affiliated companies and properties as shown by the books of the foreign companies. The stated amounts are those reported to the Finance Division by the American companies controlling the investment. The estimates of United States portfolio investments abroad are based on the principal amount of foreign dollar bonds and the estimated value of miscellaneous portfolio investments, chiefly common stocks.

Table 20.-United States Long-Term Investments in Foreign Countries, by Types of Investment and by Geographic Areas, Dec. 31, 1937

Adjusted throughout for estimated repurchases by foreign investors. (See table 22.) 2 Includes an omission estimate of slightly less than $300,000,000.

NOTE-For the reconciliation of the above estimates with the estimates as of the end of 1936, see appendix C.

65 For a detailed discussion of the factors affecting United States direct investments abroad from 1930 to 1936, inclusive, see Dickens, Paul D., American Direct Investments in Foreign Countries-1936, a recent publication of the Finance Division.

One-third of the United States long-term foreign investments at the end of 1937, or $3,630,000,000 out of a total of $11,074,000,000, were located in Canada. That country occupied first place in both types of investments-direct and portfolio. South America_and Europe followed, each with about 22 percent of the total. Both types of investment were prominent in those areas. (See table 20.) Two other areas, (1) the West Indies and (2) Central America and Mexico, were fourth and fifth, respectively-in both cases because of the large direct investments located there.

UNITED STATES DIRECT INVESTMENTS IN FOREIGN COUNTRIES

Inasmuch as a detailed analysis of direct investments was only recently released (American Direct Investments in Foreign Countries-1936) it will not be necessary to enter into an extended discussion here. As shown in table 20, at the end of 1937 $2,009,000,000 of these investments, or about 30 percent of the total, were located in Canada. South America and Europe, in which the holdings totaled $1,516,000,000 and $1,279,000,000, respectively, followed in order. Cuba's share in the total value of American foreign direct investments was, among individual countries, second to that of Canada, while Chile, Mexico, and the United Kingdom followed in the order named. The relative size of the investments by geographic areas at the end of 1936 is shown in figure 10.

The principal industrial group among the total direct investments abroad was that comprising public-utility and transportation enterprises. These investments, comprising about 24 percent of the total, were confined largely to the Western Hemisphere. Manufacturing investments, making up less than 22 percent of the total, were concentrated largely in Canada and Europe. The remaining important groups were: Petroleum, 16 percent; mining and smelting, 16 percent; and agriculture, 7 percent (see fig. 11).

UNITED STATES PORTFOLIO INVESTMENTS IN FOREIGN COUNTRIES"

As of December 31, 1937, portfolio investments of $4,204,000,000 were $537,000,000 less than they were at the end of the previous year. Sinking-fund and redemption operations effected a reduction of $343,000,000, of which $137,000,000 represented previously repatriated bonds surrendered in lieu of cash. In addition, a reduction of $176,000,000 was made for previously repatriated bonds which were redeemed or converted into foreign internal issues.

The principal additions to the portfolio investments were the 3 percent dollar bonds issued by the Conversion Office for German Foreign Debts. These bonds were outstanding at the end of the year in the amount of $27,000,000. Other scrip and funding bonds totaled $12,000,000, including the funding of blocked accounts in Brazil.

Included among the foreign dollar bonds are the securities of 45 countries, 5 of which account for 67 percent of the total issues, with no one of the remaining 40 making up as much as 31⁄2 percent. The leading 5 are: Canada, 36.4; Germany, 10.7; Brazil, 8.1; Chile, 6.4; and Argentina, 5.4. Foreign dollar bonds consist primarily of the issues of foreign governments-national, provincial, and municipal-or

0 Prepared by Robert L. Zellman, of the Finance Division.