banks,38 an increase of 96 percent over the corresponding date in 1938. Central bank deposits in New York commercial banks and trust companies on that date totaled $359,000,000,38 an increase of 67 percent during the year.

Figure 10.-International banking accounts of the United States, 1929-39.

DOLLAR ASSETS OF BELLIGERENTS AND CERTAIN EUROPEAN NEUTRALS

Inasmuch as the United States is the principal industrialized neutral, the possession of dollar assets has been considered by belligerents and neutrals 39 as an important part of their war economy. It was partly for that reason that European countries built up their balances in this country and transferred their gold reserves, or large parts of them, here for safekeeping.

The estimated short-term and long-term dollar assets of the belligerents and principal neutrals at the end of 1939, are shown in table XII. As mentioned previously, England, France, and Canada, as well as the European neutral countries, had made special efforts to build up their reserves of dollar assets, particularly their short-term balances. German balances, on the other hand, were reduced still further from the low levels of the past few years. All of the belligerents, and Italy, sold domestic (United States) securities on balance during the first 8 months of the year.

Notwithstanding net sales of United States securities by the United Kingdom, France, and Canada during the September-December period, the market value of their long-term assets at the beginning of the war was probably slightly lower because of the price rise of those months. The Standard Statistics index for 420 stocks for the last week in August stood at 81.6, while that for the last week of December stood at 91.3, an increase of over 11 percent. An increase of 11 percent in the average market value of the security holdings of

38 Federal Reserve Bulletin, February 1940, p. 125, and April 1940, p. 355. These data were supplemented by figures relating to central-bank funds in New York as of January 2, 1935. 39 See footnote 22, p. 25.

Table XII. Estimated Dollar Assets of Belligerents and of Neutral European Countries, End of 1939

1 End-of-December data not available. Figures given are as reported for January 3, 1940. Source: Short-term assets, Bulletin of the Treasury Department; long-term assets, Finance Division, Bureau of Foreign and Domestic Commerce.

belligerent countries would indicate an increase in the value of those holdings by $200,000,000, only partially offset by reported net sales amounting to $117,000,000.

Holdings of dollar assets by neutral countries during the first 4 months of the war increased rapidly on both long-term and short-term account. They still constituted a reserve of purchasing power, whereas the assets of belligerent countries had become a current account from which payments were being made for military supplies.

INCOME FROM FOREIGN INVESTMENTS

On the basis of income received and paid out on international investments, the United States was a larger net creditor than was shown by the investment estimates. Total receipts, as shown in table XIII, were estimated at $531,000,000, while total payments were estimated at $211,000,000. The net receipts of $320,000,000 may be compared with similar receipts of $353,000,000 in 1938.

The largest item of receipts was $390,000,000 from direct investments.40 This constituted an average yield of 5.65 percent, compared with 5.8 percent in 1938. The decline was not caused by a drop in earnings, which showed little change. One extra-large item of dividends paid out of surplus in 1938, with no equivalent payment in 1939, accounts for most of the reduced receipts of income in the latter year. Earnings reinvested were estimated at $70,000,000 in 1939 and $60,000,000 in 1938. It was still impossible in several countries, notably Germany and Italy, and quite difficult in some other countries, to remit the earnings of the subsidiaries to the parent company. Restrictions had not been placed, at the end of the year, on the remittance of income from investments in the United Kingdom, France, and Canada.

The influence of war preparations rather than of the war itself was evident in the continued high average rate of earnings and of income

40 The questionnaire returns and other data upon which these estimates of the earnings of and income from direct investments were based covered approximately 50 percent of the total investments and 250 United States corporations. A copy of the questionnaire is given in appendix E-II, Income from United States Direct Investments Abroad, 1939. The sample data indicated average net earnings of 6.4 percent and average income received of 6.0 percent.

Figure 11.-Receipts and payments of income on United States international investments, 1934-39. Table XIII. Receipts and Payments of Income on United States International Investments, 1938-39

Income to foreigners from direct investments in United States.

Income to foreigners from other long-term investments in United States.

Income to foreigners from short-term investments in United States..

Total payments...

Net estimated receipts of income..

22

22

1105

110

1 Revised.

from petroleum and mining enterprises-9.2 and 7.8 percent, respectively, in 1939 although the earnings of both were at a lower rate than in 1938. Manufacturing and paper and pulp enterprises showed increased earnings.

Income received in 1939 from portfolio investments amounted to $133,000,000,11 only $2,000,000 less than in 1938. There were no important changes in the interest status of foreign dollar bonds. The decline of $6,000,000 in reported receipts from European countries resulted from smaller receipts (1) from Austria and Czecho-Slovakia after their seizure by Germany, (2) from Yugoslavia, where issues upon which partial interest payments had been made paid no interest at all, and (3) from other countries, on account of reductions in outstanding issues as a result of the regular sinking-fund purchases. A revision of the estimated repatriation of German dollar bonds necessitated a change in the estimated receipts from Germany in 1939. These declines were partially offset by greatly increased receipts from Chile and a larger estimated income received from investments in miscellaneous securities. The average rate of yield on the par value of the portfolio investments in 1939 was 3.5 percent, as

Figure 12.-Income and debt-service receipts from United States portfolio investments in foreign countries and from war debts, 1930-39.

compared with 3.3 percent in 1938. On a market-value basis the average yield was 5.1 percent in 1939 and 4.9 percent in 1938.

Short-term foreign investments in conformity with the short-term rates prevailing in the world today continued to yield only slight returns estimated at 1.3 percent on United States assets in foreign countries and one-eighth of 1 percent on foreign assets in this country. The latter were largely demand deposits which could not, by banking regulations, draw interest.

creases.

Income paid to foreigners from investments in the United States increased slightly in 1939 over 1938. Dividends paid on commonstock holdings and income from direct investments showed small inThe rate of dividends on common and preferred stocks increased enough to offset the effect of the decline in the number of shares held, raising the index of total common dividends from 75 to 79. Total dividends paid on foreign-held preferred shares dropped about 2.5 percent. Interest paid on foreign holdings of United States corporate bonds and other income from investments in the United States remained practically unchanged.