term loans and investments decreased substantially, while the net increases in deposits and decreases in acceptance credits offset each other. Table 37.-Outstanding Short-Term Foreign Liabilities and Assets Reported by Banks and Brokers in the United States, Jan. 1, 1936, Dec. 30, 1936, and Dec. 29, 1937 1 1 Based on Statistics of Capital Movements between the United States and Foreign Countries, Report No. 1, pp. 19-53, Report No. 2, pp. 27-44, and Report No. 6, pp. 19–30. Negligible. GERMAN STANDSTILL CREDITS The decline in American short-term banking assets in Germany. from $165,000,000 at the end of 1936 to $126,000,000 at the end of 1937 was the most important single factor in the decrease during the year in the total foreign short-term assets of United States banks. This decline reflected in considerable part the extent of liquidation during the year of outstanding German Standstill credits. The share of United States banks in outstanding Standstill credits on December 31, 1937, was 227,000,000 marks, or about $91,000,000, as compared with $114,000,000 a year earlier. Thus, it is seen that these credits comprise about 72 percent of all American short-term banking funds in Germany. Outstanding credit lines of United States banks amounted to 250,000,000 reichsmarks. The small amount_of unused credits-23,000,000 reichsmarks was largely the result of the provision in the seventh Standstill agreement which permitted the cancellation of certain unavailed credit lines. Total outstanding foreign credits (availments), which in the summer of 1931 aggregated 6,300,000,000 reichsmarks, had been reduced, under the Standstill agreements, to 1,135,000,000 reichsmarks by the end of 1936 and to 893,000,000 reichsmarks at the end of December 1937. Unused credit lines, as of the latter date, amounted to 78,000,000 reichsmarks. American banks, by being willing to take a loss by liquidating their credits in registered marks, reduced their outstanding credits far more than have the British banks. The American credits now comprise about 25 per cent of the total under the Standstill agreement. The eighth Standstill agreement, covering the period from March 1, 1938, to February 28, 1939, was concluded in London in December 1937. A special clause provides for an eventual 3-month extension of period covered by the agreement. One of the features of this agreement is the clause providing for the conversion of some of the frozen commercial credits into genuine acceptance credits. The cancellation of unused bank credits provided for in the seventh Standstill agreement has been withdrawn. Direct credits to industrial and commercial firms may still be canceled if they have not been used for 2 successive years. MISCELLANEOUS CAPITAL MOVEMENTS Miscellaneous capital transactions, which resulted in a net outflow of $12,000,000 in 1936 and a net inflow of $5,000,000 in 1937, covers transfers of capital, primarily at short-term, by nonbanking institutions. The item includes, in addition to changes in exporters' and importers' balances, accounts receivable, accounts payable, and other items as reported to the Treasury Department, plus, when such exist, the international credit operations of governmental lending agencies.92 MOVEMENTS OF PAPER CURRENCY Although the gross international movement of United States paper currency in 1937 was larger than in any year since 1933, the net movement was probably of negligible proportions. Total exports, including an estimated $23,000,000 exported through nonbanking channels (that is, carried to foreign countries by travelers and sent abroad through the mails), and total imports were each placed at approximately $52,000,000, as compared with $57,000,000 and $35,000,000, respectively, in 1936. The net movement of currency in 1937 was therefore nil, as compared with estimated net exports of $22,000,000 in the preceding year. 93 Exports of currency to Europe through reporting banking channels in 1937 were again principally to the former gold-bloc countries (France, Netherlands, and Switzerland), with substantial amounts going also to Belgium, the United Kingdom and the Union of Soviet Socialist Republics (see table 38). Total recorded exports to Europe of $21,500,000, although much smaller than in 1936, were still greater Cash payments to foreign producers and governments by agencies of the United States Government are included in the statement of the international cash transactions of the United States Government. 93 The method of estimating currency exports through nonbanking and nonreporting channels was briefly described in Trade Information Bulletin No. 833, pp. 46-48. than in any other recent year. Estimated unrecorded exports of $23,000,000 increased the total outward movement of United States paper currency to Europe to $44,500,000. As in the case of shipments through banking channels, currency receipts from European countries in 1937 originated chiefly in the former gold-bloc countries; but imports from Germany, Italy, Poland, and the United Kingdom were also large. Aggregate imports were reported at $47,600,000, well above the level of recent years. The estimated net movement of currency between the United States and Europe was an import of approximately $3,000,000, as contrasted with an export of $8,600,000 in 1936. Table 38.-International Movements of United States Paper Currency, 1936-37 [In millions of dollars] Recorded currency movements between the United States and other non-European countries were: Exports, $1,300,000; imports, $8,100,000. The total recorded international movement of United Sates paper currency in 1937 was, therefore: Exports, $29,800,000; imports, $60,400,000; excess of imports. $30,600,000. The reported movements of currency between the United States and Cuba, the Dominican Republic, and Panama, countries in which dollar notes are used extensively for hand-to-hand circulation, showed net exports of $2,300,000 in 1937, as compared with net imports of $5,500,000 in the preceding year. Currency movements are classified for balance-of-payments purposes as transfers of short-term capital. Foreigners who acquire and hoard United States paper currency are in effect holding a non-interestbearing short-term claim upon this country, and the transaction is equivalent to an inflow of short-term capital. The release of domestic currency from foreign hoards is, on the other hand, equivalent to an The countries mentioned are countries in which the expenditures of American travelers, or to which personal remittances by alien and other residents of the United States. are important. The general increase in currency receipts from these countries in 1937 as compared with 1936 reflected primarily the return of the larger amount of currency carried to Europe by travelers or sent abroad through the mails during the year and to a minor extent, if at all, a reduction in European hoards of dollar notes. outflow of short-term funds. Monthly data on movements of currency between the United States and Europe, shown in table 39, indicate their responsiveness to the changing position of the dollar in the foreign-exchange markets and their close relation to capital movements of other types, especially transfers of short-term banking funds. Table 39.-Recorded Movements of United States Paper Currency to and From Europe, by Months, 1937 If account is taken of the currency carried abroad by travelers and sent out in the mails, there was, during the first three quarters of 1937, a further absorption of dollar notes by certain European countries; but heavy receipts of currency from Europe during the last quarter produced a small excess of imports for the year as a whole. The export movement during January-September was accompanied by a strong inflow of short-term banking funds,95 and the respective movements were especially large during the second quarter. Similarly, the currency import movement of October-December coincided with a pronounced outflow of liquid balances. Imports of currency from Europe in November exceeded those in any month since the crisis of March 1933. 95 There was probably a net import of currency from Europe in March, during which there was a small net outflow of short-term banking funds. APPENDIXES A. CHRONOLOGY, 1937 1 JANUARY 7. Japan tightens exchange-control regulations. 22. Japan announces gold will be shipped abroad, if necessary, to protect yen. 28. Bank of France raises discount rate from 2 percent, in effect since October 16, 1936, to 4 percent. 28. London banks grant credits of £40,000,000 to French railroads for use of French Treasury. FEBRUARY 2. First of five equal installments of French railroad credit becomes available in London. 4. Statement of Bank of France for week ended January 28 shows loss of 3,000,000,000 francs of gold to Stabilization Fund. 5. French Finance Minister Auriol announces he will rely on loans to meet budget deficit and not on devaluation or higher taxation. 12. German decree places Reichsbank directly under Government control. 16. Bank of Netherlands reduces buying price of gold by more than 2 percent. 20. Standstill Conference, meeting in Berlin, extends outstanding German short-term credits for 1 year ending February 28, 1938. 22. Discount on tourist lira increased from 6.7 percent to 9.7 percent below parity rate of 5.26 cents. 23. Polish Government offers to holders of Polish dollar bonds now in default choice of 35 percent cash payment of matured coupons or 3 percent 20-year funding bonds. 26. Final installment of French railroad credit becomes available in London. 27. German Foreign Exchange Control Office decrees that foreign securities can be bought and sold only with its permission, unless sold to Reichsbank or agent banks. MARCH 5. French Cabinet announces five measures designed to influence capital repatriation. Bank of France is permitted to buy gold at current market rate and to remove restrictions on freedom of gold movements. 6. Sharp decline in franc as result of removal of peg maintained since October 1936. 16. Subscriptions to second tranche of 5,000,000,000-franc French national defense loan bring total subscriptions to more than 8,000,000,000 francs. APRIL 9. President Roosevelt denies that Government plans to reduce buying price of gold. 10. Bank of France raises buying price of gold. 13. Earmarked gold amounting to approximately $10,800,000 in United States is sold to Treasury by foreign central banks as result of rumors of possible cut in gold price. 14. Bank of France again raises gold-buying price. MAY 4. British Chancellor of Exchequer assures House of Commons that Government will continue to buy gold to aid currencies. 21. Bankers of British dominions hold gold parley in London for purpose of weighing questions arising from concentration of gold in United States and England. In the preparation of this Chronology extensive use was made of the Quarterly Supplement to the Review of Periodicals, issued by the Board of Governors of the Federal Reserve System. |