International Monetary Policy: Stabilization Credits and Exchange Controls
THIS CHAPTER will deal with America's postwar policies in the field of currency-stabilization credits and foreign-exchange controls except those involved in multiple-exchange-rate systems, which were discussed in Chap. 9. The special problems of America's relations with the sterling area and the European Recovery Program countries will be taken up in Chap. 11.
American experience with stabilization credits dates from the activities of the Federal Reserve banks during the 1920's in lending support to European currencies. These activities came to an end with the depression and the breakdown of the international gold standard. In the early part of its history, the United States Exchange Stabilization Fund rendered technical assistance to other countries in stabilizing their currencies under the Tripartite Agreement, but as we have seen, these activities could scarcely be called stabilization operations. A true stabilization loan or line of credit is one which is made available to a country for use in stabilizing a currency for which there is a free market, and the rate to be stabilized is one which is considered to be an equilibrium rate capable of being held over a period of time without a net loss of foreign exchange. Thus a true stabilization loan supplements a country's foreign-exchange reserves not for the purpose of meeting a planned deficit, but rather to enable that country to meet deficits due to seasonal, speculative, or other short-term factors.
Operations of the United States Exchange-stabilization Fund. Few of the stabilization loans of the Exchange Stabilization Fund or of the Monetary Fund could meet the tests of a true stabilization loan. Either the loans were used to meet planned or expected balance-of-payments deficits, or they were made to countries without free exchange markets