Since the return of convertibility among the currencies of most major industrial countries at the beginning of 1959, a crisis affecting at least one major currency has threatened each year; the U.S. balance of payments has been in continuous large deficit; and the stability of the convertible gold-dollar and sterling system has been increasingly questioned. With the transition to convertibility proving to be so turbulent, doubts have arisen over the adequacy of liquidity arrangements for the future and calls for a great reform of the international monetary system have quite understandably been intensified.

For most of the first five years of convertibility, the financial officials of the leading industrial countries have necessarily concentrated their efforts on developing, through increasingly close and harmonious coöperation, one facility after another that was adapted to the immediate needs created by the new circumstances. To have turned aside for protracted discussion of vast ideas for major reform, before the outline of the new convertible system itself had become scarcely visible, might have invited each incipient disturbance affecting any currency to become a disaster for all.

But most of the foundations for a new system of defenses have now been put in place and effectively tested in the joint action that has been taken to contain the heavy pressures on sterling in the spring of 1961 and at the beginning of 1963; to neutralize the monetary impact of the Berlin crisis in the summer of 1961; to halt the run on the Canadian dollar in May-June 1962; and to avert any monetary repercussions of the stock market collapse in May, or of the Cuban crisis in October 1962.

Several different groupings have also evolved among governments for carrying forward the consultation and coöperation that have proved so useful during these early years of convertibility. While the further use and improvement of the present combination of new and old arrangements may well prove fully adequate, the stage has clearly been reached, both in terms of facilities and of mutual understanding, when governments can in prudence examine together two profound questions: Does a reasonable projection of the present course of the growth of monetary reserves point toward a possible inadequacy of international liquidity over the years ahead? And if such an inadequacy should appear possible, what steps can usefully be considered now to provide for the nature and dimensions of future needs that can be foreseen or foreshadowed?

One other major obstacle might still impede a frank and searching appraisal of these questions by the various governments-concern that the large deficit which the United States is still running in its balance of payments would distort any consideration of longer-run problems. That deficit has, to be sure, been the major cause of imbalance in the international payments system for nearly six years. But the President's program, presented on July 18 of this year, demonstrates emphatically the determination of the United States to correct its own deficit, and to keep a sharp separation between that effort and any intergovernmental review of the prospects and arrangements for international liquidity in the future.

This article does not attempt an evaluation, even in miniature, of all of the imaginative proposals that have been made for reform. It does attempt an introduction to such an evaluation by distinguishing three quite different conceptions of the nature of the monetary system which run through various proposals; by stressing the differences in significance among three different meanings of liquidity; by indicating the possible relevance of the various innovations of the past few years for the liquidity needs of the future; and finally, by briefly cataloguing in four main groupings the proposals on which governments might most usefully proceed toward a clarification of views among themselves. Most of these proposals differ so widely, and views on each are so deeply held that no consensus on a major change, nor even a consensus as to whether or not some kind of major change is needed, can be expected to develop among the nations of the world without a long period of exploratory discussion, followed by extended negotiation.

II

Some of the reform proposals would turn back from the dual system of monetary reserves-gold and foreign exchange-that has characterized much of this century. They would return to a "full" gold standard by doubling or tripling the price of gold and then removing dollar or sterling or other foreign exchange from the world's monetary reserves. Proposals of this kind presume a fixed price for gold after a one-time drastic change has been made in that price.

Another set of proposals moves off in a quite different direction, giving up a fixed price of gold entirely and providing that each currency fluctuate in price against others. With a country free to allow its exchange rate to drop whenever it might lose reserves, proponents argue that there would be an economizing of reserves and the world would presumably no longer need to be as concerned as it has been over the composition or the total of the monetary reserves themselves.

Other proposals-both evolutionary and revolutionary-move in still a different direction. This third approach would include in reserves a more flexible and larger volume of foreign exchange or internationalized credit than is used today, superimposing this upon the slow accretion of gold that reaches the world's monetary reserves. In most cases, proposals of this character would continue the present settled gold price of $35 per ounce.

In effect, these are three fundamentally different conceptions of the nature of the monetary system that is needed: a full gold standard with fixed parities among currencies; no parities and reliance on fluctuating rates; and gold supplemented by various forms of credit-a gold-exchange standard with fixed parities. The first is discussed somewhat further in the next section; variable exchange rates, briefly, in the section following; but for reasons which will then appear, the United States considers only the third to be a promising avenue for constructive advance in the future.

III

The return to a full gold standard has a distinguished spokesman, M. Jacques Rueff. In "L'Age d'Inflation," he has recently restated his view that the "gold-exchange" standard has failed; that the time has come to start over, revaluing gold once and for all, and then reëstablishing the disciplines of a system in which only gold is held in monetary reserves, and only gold is used in settling the net differences in the balance-of- payments accounts among nations. The rigid certainty of "gold points" would be reestablished for every solid currency. But the attractive simplicity of this approach is marred by the knowledge that it was a close facsimile of such a system which broke down after World War I and led to the currency chaos of the thirties.

To avoid a repetition of the thirties, some of the advocates of a return to gold have suggested that reliance now could be placed upon the increasingly intimate and effective coöperation that has been developed among the financial authorities of the leading countries. But that would seem to beg the question. For the coöperation consists, essentially, in reconciling economic policies among countries so that the pattern followed by the internal growth of each country can be fitted into the pattern of external transactions that will support balance-of-payments equilibrium. National policies for incomes, as well as for interest rates and credit availabilities, seem to be, or to be becoming, a normal part of the responsibilities which all governments now acknowledge in varying degrees for promoting growth, avoiding instability and achieving external balance.

Many countries may, with the United States, eschew reliance on a national plan, but nearly all, regardless of their approach to planning as such, rely on government to condition and influence their over-all economic environment-to counteract deflation, to check inflation and otherwise to interfere, as it were, with the adjustment processes characteristic of the firm but arbitrary disciplines of the full gold standard.

Without pausing longer to air the debate here, it may perhaps be fair to note that there is much still to be done by the proponents of the full gold standard if they are to reconcile the advantages claimed for it with the facts of present-day government in economic life. There is, to be sure, a trace of nostalgia for the days of complete laissez faire in much that is written on the return to a full gold standard. Yet in the present complex of economic relations among nations, it is difficult to imagine any gold standard at work without being rather extensively managed. And, if managed, it would be little different from the procedures of today, except that a gigantic devaluation would have intervened and confidence in the dollar or any other currency as a supplementary part of the management process would, as a consequence, have been largely destroyed. It would seem difficult indeed to build a system that depends on periodic repudiation of a government's firm undertaking to maintain the fixed price of gold.

IV

Variable exchange rates-at the opposite end of the scale from fixed gold parities-also seem to have an elegant simplicity. Whenever a country has a balance-of-payments deficit and reserves are flowing out, the authorities can simply move down the price of their currency until the outflow stops. At that level, imports will presumably decline, exports will rise and capital will flow in, thereby restoring balance in the external accounts. Even better, it is suggested, when rates are free to move, the external depreciation or appreciation of a currency can occur so quickly that the unsettling fluctuations of imports, exports or capital flows need never occur. They will be averted by the prompt movement of the exchange rate to a level that assures an approximate balance among the outpayments made for, and the inpayments received from, everything that has continued to move, quite uninterruptedly, while the price tag on the currency was changing. Moreover, with exchange rates absorbing the impact of most changes, actual flows of reserves among countries would be very small, and the need for reserves of international liquidity quite modest.

Despite a long succession of neatly argued academic demonstrations of this case for more than half a century, hard experience has persuaded the financial officials of most countries that flexible exchange rates-outside the narrow margins for day-today fluctuation that are sanctioned by the International Monetary Fund (I.M.F.)-are neither desirable nor practical. For fluctuations in the price of a country's currency create costly uncertainties for the pricing of its exports and imports by the people who actually sell and buy them, and make more complex the investment decisions that ultimately determine how and where the goods will be produced. To be sure, efficient futures markets can provide some hedge against these exchange risks, but the cost of such protection might well be expected to become excessively burdensome in a world in which the exchange rates for all principal currencies were free to move widely against each other. Moreover, depreciation of the currency as a method of adjusting deficits in the balance of payments of any one country may be resisted by competing countries, leading to protective trade restrictions, or a series of competitive depreciations through official actions, to preserve national export markets.

Certainly the judgment of the world in 1944, when the International Monetary Fund was founded, was that the resulting impairment of trade and investment flows would more than offset any possible gain from a reduction of dependence on official reserves of international liquidity. That conclusion would be reinforced now by those who would see in such heightened uncertainties in the exchange markets a potentially disruptive influence on much that has been achieved since World War II in international monetary coöperation. To be sure, fluctuating rates are sometimes unavoidable in the developing countries, if their economies are being wracked with the distortions of serious inflation and no fixed parity can be effectively maintained until other causes of economic disorder can become more nearly settled. But even in those cases, the final objective, none the less, is a stable rate.

In short, the concept of fixed parities has become so much a part of the thinking and practice of most members of the I.M.F. that there seems little or no prospect for a consensus in favor of flexible exchange rates.

V

Most financial officials are agreed-as the ministers of the ten countries which have pledged supplementary resources to the International Monetary Fund declared at their meeting of September 1962-that there is no over-all shortage of international liquidity at present. There are much wider differences of opinion on whether or not there is likely to be a shortage of international liquidity in five, ten or fifteen years. If the total of gold and official foreign exchange reserves (or their equivalent) were to rise as much over the next fifteen years as during the 1948-62 period, the world would need at least $15 billion in new reserves, and there may be reasons for considering that an inadequate criterion. In view of the limited flow of newly produced gold into monetary reserves and the recent overstrain of the dollar, there is certainly enough basis for doubt concerning these future prospects to warrant much more thorough study of various possible projections of future availabilities and requirements.

Even before such studies are completed, however, the concept or meaning of international liquidity needs clarification. For there are three different meanings, and much unnecessary and unintentional disputation arises from confusion among them. One meaning is related to the needs of trade; it refers to the availability of credit facilities for the financing of a growing volume of transactions among growing economies. In this sense, there clearly is not now, and is not likely to be over any foreseeable future period, a shortage of international liquidity. Exporter and importer credits are amply available in the national currencies of most of the large trading nations, and will be provided in dollars by many of them. Nor is there, because of the elasticity of these credit facilities, any close connection between the growth of reserves and the growth of world trade. It is notable that over the 1948-62 period, while known monetary reserves increased by about one-third, the known value of world trade more than doubled.

Thus, so far as commercial requirements are concerned, as the late Per Jacobsson pointed out often and forcefully, the expanding capabilities of the great banks of the principal trading nations, and the keen competition among them, assure that international trade will never languish for lack of credit. But underlying the flows of trade and capital are the national reserves of each country-reserves that must be drawn upon if seasonal or cyclical or accidental or structural and sustained factors bring about a cumulative total of outpayments that exceeds the total of inpayments received by the country as a whole. And these resources for settling the residual balances among countries represent the two other kinds of liquidity-the stock of actual reserves and the availability of borrowed reserves.

The "owned reserves" are customarily held by treasuries and central banks, which keep them in the form of gold or dollars or sterling, and to a limited extent in other convertible currencies. These reserves are acquired, of course, when a country runs an over-all balance-of-payments surplus. The total supply for the world as a whole is determined by the flow of new and dishoarded gold into monetary reserves and the amount of their currencies which the reserve-currency countries issue-either through acquiring gold and each other's currencies or through running a balance-of- payments deficit. Because the dollar, while still generally a preferred medium of exchange and of settlement, has been paid out to foreign holders in unusually large amounts for the past five years and more, the world as a whole has found itself abundantly supplied with dollar liquidity. In this sense, too, there is no present shortage of international liquidity, although the longer-run prospects are not as clear.

Monetary authorities also may count in their reserves a part of their drawing (or borrowing) rights at the International Monetary Fund. And every member of the Fund reckons explicitly or implicitly on the further support given its own reserve position by the prospect of being able to draw on the Fund-though increasing constraint is imposed by the Fund as the amount drawn by a member rises relative to its quota. Outside the Fund itself, each country may, of course, develop any number of other borrowing relationships with other countries to obtain dollars or other currencies that could be used in case of need in settling its net deficit. For the most part, such arrangements have been short-term, for use in meeting immediate and sudden reserve losses, and, until recently, have been negotiated only at the time of need; they are subject to whatever conditions the creditor might wish to impose at that time.

It is the magnitude and conditions on which reserves may be borrowed which give rise to a great part of the concern that is expressed about the future adequacy of liquidity arrangements. Without implying any criticism of the way in which the International Monetary Fund is performing its presently agreed role, most of the critics center their suggestions on ways in which that role might be expanded. But before governments begin detailed study of other steps that might be considered for expanding liquidity in the future, it will be helpful to review some of the kinds of innovations that have already been introduced over the past two or three years for conserving or swapping or borrowing reserves. And before attempting that review, one other area of misunderstanding concerning international liquidity and its potentialities needs attention.

This is the relation, already mentioned, between the deficits which the United States itself is still incurring and the possibility of early relief through quick adoption of new arrangements for international liquidity. Much has been said and written to imply that a simple turning of wills toward the task could rather promptly produce a new system of credits that would free the United States from the balance-of-payments disciplines under which it is presently struggling. That is a mistaken impression. The United States has already, in its role as banker supplying dollars for the known official reserves of other countries, received some $9 billion of financing for its deficits over the period 1948-62. In addition, some $6 billion has been added to the working balances of foreign banks, business enterprises and individuals. The rest of the world has thus already provided in this way an impressive amount of automatic credit to the United States. No future arrangement is likely to grant more, any more readily, for a single period of sustained deficits. And while the current deficits continue, much of the remaining transitional financing of those deficits will probably have to be negotiated directly with the various countries whose payments positions are strong. That is why it is not possible under the pretext of any new kind of approach to international liquidity to escape the real necessity for balancing the United States' own accounts, as soon as that can practicably be done.

Clearly, if more reserves were available to finance deficits in the over- all balance of payments of countries whose economies may in the future be temporarily out of phase with other economies, the restorative processes of marketplace adjustment could have the time they need to bring the patterns of internal expansion into an orderly alignment with foreign markets, and reëstablish a sustainable balance in international accounts. Without that time-that is, without larger reserves or reasonably sure access to borrowed reserves-it may persuasively be argued that some countries must proceed toward their own growth objectives in fits and starts-periodically halting or inhibiting domestic change by taking temporary measures to cut the balance-of-payments deficit.

This is, indeed, the basic case for assuring ample growth not only in the supply of actual reserves, but also in the facilities for borrowing them in relatively large amounts when needed. But there is another side of this picture which cannot be ignored. Added reserves may, to be sure, be used to purchase the time needed for a major internal readjustment that would, when completed, also restore international balance. But the same added reserves might, without some element of restraint or discipline, be used to finance a period of increasing internal inflation, during which the country might move even further away from a balance between its inpayments and outpayments with the outside world, and in the end face conditions of virtual bankruptcy.

The problems of nations are, in this general sense, little different from the familiar problems of individuals in the credit process. Too little credit (i.e. reserves or borrowing capacity) prevents the full development of an economically sound potential; ample credit can make that potential a reality; but the mere assurance of credit does not guarantee such a result and abundant credit can indeed create an overextended position and lead to collapse. This is why, in any concept of the needs for liquidity, allowance must also be made for the need to preserve some check-some degree of creditor surveillance-in the allocating of reserves and the extension of facilities for borrowing them.

VI

During the recent period of excessive deficits in the United States' balance of payments, the resulting large outflow of dollars has minimized any immediate pressure to enlarge further the aggregate supply of reserves becoming available for other countries. But there has been genuine concern over the desirability of adding to the gold component of monetary reserves, and active interest in promoting various kinds of facilities for borrowing reserves. As a result, effective joint operations have evolved in the London gold market; the United States has begun to hold other currencies alongside gold in its own reserves; the United States has undertaken forward operations in several leading currencies in collaboration with the central bank responsible for each; ten countries and the Bank for International Settlements have joined with the United States in establishing and using reciprocal currency arrangements (swaps); the United States, while borrowing dollars under special arrangements with three leading countries, has also borrowed from five in their own currencies; and a special arrangement has been made for adding up to $6 billion of additional resources, in ten currencies, to the holdings of the International Monetary Fund, in case of need.

The operations in the London gold market, all conducted by the Bank of England, have been a model of informal coöperation, renewed through frequent consultation. Over nearly two years of these operations the speculative fever has largely been removed from transactions in gold and one international incident after another has brought only the moderate upswings in price that deter capricious speculation. And modest flows of gold have been resumed into the world's monetary reserves.

In beginning to hold other currencies in its own reserves, the United States has widened its capacity for versatile defense of the dollar, as well as opening one new way toward an expansion of liquidity during any future period of balance or surplus in the external accounts of the United States. The holding of foreign exchange balances is, of course, a prerequisite for the forward, swap and borrowing operations that will be described shortly. Each of them forms a part of the strengthened dollar defense system which is now capable of assuring adequate liquidity, and resisting speculative disturbance, during any forthcoming period of inter- governmental study of the international liquidity system as a whole. While outright acquisitions of other currencies will necessarily remain small as long as the United States continues in substantial deficit, these holdings may be relevant to the further evolution of the liquidity system. For if the United States' balance of payments should move into balance, or surplus, before a consensus should have formed around other arrangements for assuring the growth of usable reserves, then the readiness of the United States to acquire and hold other currencies will break through what might otherwise have seemed an impasse.

The United States must, of course, reëstablish balance-of-payments equilibrium to maintain confidence in the strength of the dollar. Yet it is quite possible, once the flow of new dollars into monetary reserves ceases, that the present excess of dollars will be quickly absorbed and that the prospects of an imminent shortage of international liquidity will appear. With the United States then standing ready to add to the supply of dollars by purchasing other currencies in controlled amounts, there will be assurance of a way out if other sources of added liquidity should prove inadequate and if extensive use of facilities for the borrowing of reserves should prove unsuitable for the then existing needs. If inter-governmental studies of the liquidity system are actively spurred, general agreement on the outlines of future arrangements for liquidity should in any event have been reached before any such impasse materialized. It is important, none the less, to make clear that provision has been made for that contingency.

The clearest day-to-day use of United States holdings of any given currency is to enable us to join other monetary authorities in maintaining orderly conditions in the foreign exchange markets-a function formerly left to foreign authorities, but one which is now seen to be as much a part of the defense of the dollar as it is of protection for the other leading currencies. And for those currencies in which active forward markets exist, vis-à-vis the dollar, the more effective steadying influence may often be exerted through official transactions in these markets.

These operations are being described at regular intervals in articles written by Charles A. Coombs, the Vice President of the Federal Reserve Bank of New York, who has done more than any other person in establishing and employing all of the new monetary arrangements. He and three of his colleagues in the central banks of Germany, Italy and Switzerland have also published in the August issue of the New York Federal Reserve Bank's Monthly Review a thoughtful survey of the possibilities which they see in these various new arrangements for the further strengthening of the international monetary system.

From the point of view of the functioning of the system as a whole, perhaps the most significant aspect of forward operations is the way in which they can be used to minimize flows into and out of reserves. They can make sheer speculation in currencies less rewarding, while making trade financing or short-term investment abroad less hazardous for the banks and businesses of countries in a strong balance-of-payments position. In this fundamental sense, the growing network of international forward operations by the central banks or treasuries of the leading countries is itself adding another dimension to the world's liquidity system.

The new ring of reciprocal currency arrangements, or swaps, can also provide useful backstopping both for "spot" and for "forward" operations in other countries. Under these arrangements, the United States agrees with other countries, on a stand-by basis, that each will make available its own currency up to a specified amount on the request of the other. The requesting country puts a corresponding amount of its currency to the credit of the other country as well. And both enter, simultaneously, on activation of the swap, into forward contracts to assure the reversal of the transaction at agreed rates of exchange in 90 days, or some other convenient period, unless renewed. No activated swaps have been renewed for a cumulative outstanding period exceeding one year; most have been reversed much sooner. But they do provide either country, in case of need, with quick and virtually automatic access to previously agreed amounts of the other's currency.

It is these arrangements, and a comparable lending of dollars to the United Kingdom by continental central banks when the pound was under pressure, that have formed the strong center of the coöperative actions that have withstood every outbreak of potential monetary disorder for more than two years. They may not in the end be found to provide an adequate answer to the world's long-run need for liquidity, but they are a powerful bulwark today-making borrowed reserves available to supplement the owned reserves of the leading industrial countries which have joined the ring.

In addition, an outer ring of borrowings has been established for the further defense of the dollar, thus reinforcing the existing monetary system. This is the latest in the sequence of innovations evolved out of experience through the joint efforts of other leading countries and the United States. Borrowings by the Treasury over the past year have been made in foreign currencies from foreign governments for terms generally of 15 months or longer. Borrowings from central banks have been made (subject to special conditions) both in dollars and in foreign currencies and, though varying in maturity, these now also generally exceed 15 months, with most clustering around two years, and one case for unusual reasons extending to five years. Three important aspects of this innovation have particular relevance to any further evolution of the present monetary system.

One is that these arrangements permit a surplus country, in effect, to lend its excessive accruals of reserves to a debtor country. This means that, with the characteristically wider reserve swings to be expected among many countries under conditions of convertibility, a partial substitute has been found for the maintenance of proportionally much larger reserve balances over the years ahead. To be sure, there has been no effort to generalize this approach as between other countries, and there may even be reservations by some countries over lending reserves in this way to the United States. But since several countries have made such arrangements with the United States, with satisfaction thus far, it is clear that a tested facility exists, as a supplement to the borrowing provided for through the I.M.F., for adding to effective liquidity by lending and borrowing existing reserves between creditor and debtor countries. Of course, this is not automatically available credit, so far as the deficit country is concerned, but it has been and can be obtained if the program for restoring balance in the deficit country is considered reasonably promising.

A second significant feature is the denomination of borrowings by the United States Treasury in the other currency. To be offered a medium-term debt instrument by a responsible government, with the obligation denominated in the creditor country's own currency, provides a unique attraction for any creditor country that may be reluctant to go on accruing dollars. And to the United States, the acquisition of other currencies through borrowing has been a logical supplement to the use of swaps, for meeting situations that are not expected to be reversible within one year.

The third feature of particular relevance is the special design used for central banks. The central bank holder of one of these United States' obligations receives interest at the rate appropriate to its full maturity, and would expect to hold it for that term. But to provide for extraordinary developments that might impose an unexpected drain on the central bank's reserves, and also to satisfy the conventional liquidity requirements of some central banks, the instrument can, at the option of the central bank holder, be converted on notice into a 90-day certificate, and that in turn, on two days' notice, into cash-the central bank's own currency. Thus, by creating a new secondary reserve instrument for the central banks of countries in a strong balance-of-payments position, the United States has made it possible for them to put some of their current reserve accruals into a form of cold storage. They are distinct from the active reserves of dollars held for possible current use. They are available as a possible source of additional dollars, at some time in the future, when the particular country or the world at large has again encountered a "dollar" or "liquidity" shortage.

It is but a logical extension of the borrowing concept that the United States should, within the existing procedures of the International Monetary Fund, have requested and received, effective July 22, 1963, a one-year stand-by authorization to borrow from the Fund, as needed, up to $500,000,000, in other convertible currencies. This will enlarge the scope within which the Fund can in effect absorb dollars corresponding to repayments of obligations to the Fund by its members, and in this way avoid additions to the large dollar holdings of surplus countries.

In addition to all these innovations, there has, of course, been the remarkable agreement of the ten leading countries to supplement the I.M.F.'s resources with up to $6 billion in their own currencies. The unifying experience of this action has already begun to weld among the financial officials of all ten countries an identification of common interest in the functioning of the international monetary system. Together with the regular participation of all members in the work of the I.M.F., and the crucial role filled by the work of the Bank for International Settlements and the meetings of central bankers held there, a flourishing climate of collaboration and confrontation has been created. This has also been systematized at the working level in the Organization for Economic Coöperation and Development. Clearly, the experience gained through these joint labors in establishing new defenses-and in maintaining, criticizing and improving them-has greatly heightened the understanding and expertise essential for fruitful collaboration in appraising any further possible reform in the functioning of the monetary system.

VII

The course of any further study among governments will no doubt move across, with much deeper penetration, many of the subjects already lightly sketched here. Much time will also probably be spent in dissecting the details of plan after plan that has been proposed and revised during the extended academic and popular discussions of these matters. But the main lines of inquiry can probably be summarized in four groupings:

Continue the present gold-dollar-sterling-I.M.F. system as the means of providing reserves, but actively enlarge the coöperative credit arrangements that have been recently developed for making fuller use of existing reserves.

Endorse (1) but also enlarge the resources of the I.M.F. and the drawing rights of its members, and increase its flexibility in using these resources as a further supplement to reserve availabilities.

Endorse either (1) or (2) or both, but also establish a new grouping of some of the other leading currencies as a complement or alternative to the roles now performed by the dollar and sterling as reserve currencies.

With or without (1) or (2) or (3), reconstitute the I.M.F. by endowing it with the capacity to create credit and the power to allocate such credit among members.

There is not, of course, any reason to presume that daring or revolutionary approaches will in fact emerge for the future. The process of evolution may very well take us where we want to go. But the needed preconditions have been established for wide-ranging governmental consideration of any possible needs, and of practical operating procedures for fulfilling them, without setting off speculative disturbances based on market apprehensions that there might be grave shortcomings in present arrangements. Nor need there now be any implication that the United States would itself be seeking only a short-run palliative for its present imbalance, under the guise of a full-scale reconsideration of the monetary system as a whole. As President Kennedy stated, in his message of July 18, 1963, "We do not pretend that talk of long-range reform of the system is any substitute for the actions that we ourselves must take now."

The Bretton Woods system is nearing the end of its second decade, a decade of remarkable achievement. Particularly in recent years, it has shown an impressive capacity to evolve and develop in response to rapidly changing needs. And the European industrial nations have now nearly completed five eventful years of convertibility. It is therefore a matter of simple prudence to take stock-to make a systematic and searching appraisal of the international monetary system-asking whether a continuation of recent evolutionary changes, or more sweeping reforms, will be needed for the probable dimensions of future requirements. This is a matter not for the United States alone, but for review by many countries, singly and through the various international financial organizations in which they participate.

Such an examination should lead to an evaluation of a wide range of proposals and suggestions, from a truly international point of view. The issue in such an international review is whether the present mixture of gold, dollars, sterling and I.M.F. facilities can in the future provide the ample supply of reserves and credits that a healthy growing world economy should have, or whether major changes are going to be needed. The issue is also whether-if any particular change should be considered necessary-that change will be able to support added growth that is real, without contributing to monetary excesses and economic instability. The resolution of such a set of issues does not rest on the mere willingness of governments to vote yes or no on whether more international liquidity would be desirable. The primary task must be one of scrupulous preparation, within and among governments, looking toward a definitive appraisal by the governments themselves. Only in this way can these issues be resolved into a clear, reliable and workable consensus.

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