Abstract
This chapter deals with the development of reserve need theory during the first fifteen years after the Second World War, i.e. before the problem of international liquidity captured widespread attention. Section i describes the actual reserve situation during this period, providing the background against which the development of analysis up to 1960 can be set. The debate on the adequacy of global reserves between the United Nations and the IMF during the early fifties is treated in section ii. Sections iii and iv cover the monetary approach toward assessing the need for reserves as developed in the Netherlands and in the United States. Finally, the IMF study of 1958 on international liquidity is discussed in section v.
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References
Cf., for instance, Thomas Balogh, The Dollar Crisis, Oxford, 1949,
and Charles P. Kindleberger, The Dollar Shortage, New York, 1950.
United Nations, National and International Measures for Full Employment, Lake Success, 1949.
United Nations, Measures for International Economic Stability, New York, 1951.
Ibid., p. 32.
Cf. “The Adequacy of Monetary Reserves”, IMF Staff Papers, October 1953, pp.181,
Cf. “The Adequacy of Monetary Reserves”, IMF Staff Papers, October 1953, 182.
IMF, Annual Report, 1952, p. 6.
Ibid., pp. 45,
Ibid., 46.
“The Adequacy of Monetary Reserves”, IMF Staff Papers, October 1953; reproduced in IMF, The International Monetary Fund 1945–1960, Volume III, Washington, 1969.
Ibid., pp. 188, 189.
Ibid., p. 192.
Ibid., p. 195.
Ibid., p. 203.
The figures found for the ratio of gold and foreign exchange to imports for the world as a whole were: 1928–42%; 1938–129%; 1951–75%; and 1952–78%. Excluding the United States the figures were: 1928–35%; 1938–69%; 1951–39% and 1952–40%. It was emphasized that the adequacy of 1938 reserves had to be judged relative to “the total amount of trade that would have been carried on under liberal trade policies and at a high level of employment” (p. 212), and not relative to the actual figures (which were too high). Such considerations had not entered into the arguments presented in the above-mentioned UN reports, which also compared the global reserve level to its pre-war figure. According to the Fund staff the fall in the reserves/imports ratio between 1938 and 1951 overstated the decrease in reserve adequacy between those years. It did believe, however, in view of a presumed increase in the volatility of world trade, that a larger amount of reserves relative to trade was necessary at that time (1953) “than would have been the case in 1938, in order to provide the same degree of relative adequacy” (pp. 212, 213).
In 1953 Harrod concluded in an article, “Imbalance of International Payments”, IMF Staff Papers, April 1953, that a shortage of international reserves had developed, a situation which he attributed to the growth of gold reserves lagging behind the growth of world trade. In later publications he advocated a rise in the official price of gold. Cf., for instance, the following publications by Sir Roy Harrod: The Dollar, London, 1953; “Plan for Restoration of Full Gold Convertibility of the Dollar together with a Revision of the Gold Content of the Dollar”, Gold Reserve Act Amendments, Hearings US Senate, Washington, 1954; “Memorandum of Evidence”, (Radcliffe) Committee on the Working of the Monetary System, Principal Memoranda of Evidence, Vol. 3, London, 1960 (especially pp. 115, 116); “The Dollar Problem and the Gold Question”, in Seymour E. Harris (ed.), The Dollar in Crisis, New York, 1961; Alternative Methods for Increasing International Liquidity, European League for Economic Cooperation, Brussels, 1961; Reforming the World’s Money, London, 1965.
Cf. Section vi, chapter 5, and section ii of chapter 6 below.
“Economic growth is the grand objective. It is the aim of economic policy as a whole…. Price stability is a subordinate objective.” (Harrod, Reforming the World’s Money, pp. 77, 78).
Cf. also Harrod’s use of the symptomatic method, discussed in section ν of chapter 5.
Cf. Annual Reports of the Nederlandsche Bank, from 1951 to 1958.
Domestic money stock plus domestic secondary liquid assets, i.e. broad money supply (M2).
Cf. G.A- Kessler, Monetair Evenwicht en Betalingsbalansevenwicht (Monetary Equilibrium and Balance of Payments Equilibrium), Leiden, 1958, pp. 398–401.
Cf. M.W. Holtrop, Money in an Open Economy, Leiden, 1972, particularly the introduction by G.A. Kessler, p. XXVII et seq.
The Netherlands provides an example of a typical open economy, with imports amounting on average to 49% of its GNP for the period 1971–75. For the United States — a typical closed economy — the corresponding figure is 7%.
This matter is pursued further in section i of chapter 10 below.
Cf. Report of the Nederlandsche Bank for the year 1956, pp. 59, 60.
Cf. Report of the Nederlandsche Bank for the year 1965, p. 77.
The Report of the Nederlandsche Bank for the year 1968 stated that: “For the present the quantitative information on these and similar questions is still too uncertain, and too defective, to permit revision or refining of the calculations”. From the Bank’s Report for the year 1969 onward the customary section on the confrontation of international reserves and uncommitted liquid assets was omitted.
Cf. Kessler, pp. 400, 401.
Kessler (English summary), p. 462.
Tibor Scitovsky, Economic Theory and Western European Integration, London/Stanford, 1958.
This is the simplified equation for the case of exogenous exports (cf. Jürg Niehans, “The Need for Reserves of a Single Country”, in IMF, International Reserves: Needs and Availability, Washington, 1970, p. 61). Scitovsky actually took into account the increase in exports due to a rise in income in the rest of the world occasioned by the increase in imports of the country concerned. He therefore derived a slightly different equation than produced here; cf. Scitovsky, pp. 104–106.
Cf. Harry G. Johnson, International Trade and Economic Growth: Studies in Pure Theory, Cambridge (Mass.)/London, 1958, pp. 156–158.
Cf. p. 49 above.
International Reserves and Liquidity: A Study by the Staff of the International Monetary Fund, Washington, 1958. (Reproduced in The International Monetary Fund 1945–1965, Volume III).
Ibid., p. 9.
International Reserves and Liquidity, p. 45.
Ibid., p. 69.
Ibid., p. 93. It made several provisos, however, such as further progress in restoring and maintaining domestic balance.
Cf. Report by the Executive Directors to the Board of Governors of December 1958 on the “Enlargement of Fund Resources through Increases in Quotas”; reproduced in The International Monetary Fund 1945–1965, Volume HI.
In the Report of the Committee on the Working of the Monetary System (the so-called Radcliffe Report, London, 1959) the problem of international liquidity was also placed in a broader context, and was related especially to the problem of international balance (cf. pp. 242–252). As to the reserve position of the United Kingdom, the report concluded that British reserves were “far from adequate in relation either to the swings in the United Kingdom’s balance of payments that are liable to occur or the balances in sterling that can be drawn upon at call” (p. 244). The report contained a lucid exposition of the complex way in which Britain’s role as the center of the sterling area influenced its reserve position and reserve need (pp. 237–240).
Cf. Thomas Balogh, “International Reserves and Liquidity”, Economic Journal, June 1960.
Ibid., p. 358.
International Reserves and Liquidity, p. 17.
Although, as pointed out above, at various places emphasizing its limitations.
International Reserves and Liquidity, p. 17.
Balogh, pp. 361, 362.
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de Beaufort Wijnholds, J.A.H. (1977). Post-war developments: 1945–1960. In: The Need for International Reserves and Credit Facilities. Publication of the Netherlands Institute of Bankers and Stock Brokers, vol 31. Springer, Boston, MA. https://doi.org/10.1007/978-1-4684-6954-7_5
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DOI: https://doi.org/10.1007/978-1-4684-6954-7_5
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