Why Banks Are Unpopular. Lecture by Guido Carli: commentary by

Why Banks Are Unpopular. Lecture by Guido Carli: commentary by

WHY BANKS ARE UNPOPULAR
Guido Carli
Milton Gilbert
Saturday, June 12, 1976
Aula oftheUniversity,Bade,
Switzerland
FOR
The thirteenth lecture meeting in the series sponsored by The Per
Jacobsson Foundation took place on Saturday,12,
June
1976, at the University of Basle in Switzerland. Marcus Wallenberg, Honorary Chairman,
presided over the meeting.
The principal paper, on the subject "Why Banks Are Unpopular," was
presented by Dr. Guido Carli, former Governor
of the Bank of Italy. A
Dr. Milton
commentary on the subject and on his paper was offered
by
Gilbert, who had recently retired as Economic Adviser of the Bank for
International Settlements.
This publication covers the proceedings of this meeting. It includes the text of the statements by the speakers, to
answers
questions
asked by members of the audience, and brief biographies,
of the speakers.
These proceedings are published
by the Foundation in English, French,
and Spanish and are available without charge from the Secretary of the
Foundation. A list of available titles in this series appears elsewhere
in this booklet.
TABLE OF CONTENTS
Page
Welcoming
Remarks
Lukas Burckhardt
Opening
.
1
.
2
Remarks
Marcus Wallenberg
Why Banks Are Unpopular
Guido CarZ
i
.
3
Commentary
Gilbert.
tion
.
14
.
20
.
24
.
25
Founding Sponsors, Board of Directors, and Officers
of
the
.
27
Publications
-
29
.
Milton
Questions and Answers
Guido CarZi
Concluding
.
Remarks
Marcus WaZ Zenberg
Biographies
.
.
- v -
Welcoming Remarks
Lukas Burckhardt
Ladiesandgentlemen:
I t a k eg r e a tp l e a s u r ei n
welcoming a l l of
you who a r e a t t e n d i n g t h i s y e a r ' s P e r J a c o b s s o n F o u n d a t i o n l e c t u r e h e r e
It i s a p r i v i l e g e f o r me as thepresentChairi nt h eB a s l eU n i v e r s i t y .
man of the Basle
Government t o make t h e s e welcomingremarks.
A t theoutI would l i k e t o s a y t h a t
I do hopeyou w i l l t a k e back
set of this meeting
favorable memories ofourcountryand,
more s p e c i f i c a l l y , o f t h i s c i t y o f
Basle.
I w i l l not address myself now, oneby one, t o t h e o u t s t a n d i n g p e r tohearthisyear'slecture.
I
s o n a l i t i e s who are assembledheretoday
w i l l o n l y s p e c i f i c a l l y welcome, i n t h e name of my Government, the speaker
oftoday--un
saluto speciale, molto cordiale a Guido C a r l i , ex-Gbvema-
tore deZZa Banca d ' l t a l i a , l'oratore d'oggi.
Per Jacobsson, whose lifetime achievements we commemorate by t h i s
l e c t u r e , was , as you may know, a f a i t h f u l f r i e n d of Switzerland and of
Basle. Born i n 1894 i n Sweden, he may b e c a l l e d one o f t h e o u t s t a n d i n g
p e r s o n a l i t i e s i n monetary policy and certainly
a pioneer in the field of
c o n v e r t i b i l i t yo fc u r r e n c i e s .
C o n v e r t i b i l i t y , " as he was c a l l e d a t
times, settled in Basle in
1931 and became theforemost economic a d v i s e r
of t h e Bank f o r I n t e r n a t i o n a l S e t t l e m e n t s f o r
more t h a n a q u a r t e r o f a
century. It was h i s i d e a s and h i s promotion t h a t l e d t o t h e
foundingof
t h e Base1Forschungszentrum fiir W i r t s c h a f t s und Finanzfragen and i t s f i r m
connection with our University.
"Mr.
Per Jacobsson then settled in
Washington , D . C . , where he was t h e
Chairman of the Executive Boardand Managing D i r e c t o r o f t h e I n t e r n a t i o n a l
MonetaryFund,andonecan
only guess as t o t h e a t t i t u d e he would t a k e i n
thefaceoftoday'sdepressing
and r a t h e r p e r t u r b e d c u r r e n c y s i t u a t i o n .
Jacobsson was a man o f f a c t and energy and a l s o a man ofgood,although
sometimes s a r c a s t i c , humor. He used t o denounce t h ef i n d i n g so ft h e
theoretical economists of his time
by saying that they always talk about
as a
money buttheyneverhaveany.Perhaps
we c o u l d t a k e t h i s s e n t e n c e
prophecyof what happenstoday i n t h i s c o u n t r y . L a d i e s
andgentlemen:
Today we are commemorating with gratitude Per Jacobsson's work,
and we
a r e commemorating t h e f i r s t l e c t u r e of the Per Jacobsson Foundation,
which
also took place here in this city
of Basle.
- 1 -
Opening Remarks
Marcus Wallenberg
Ladies andgentlemen:RandolphBurgess,
who i s t h e Chairman o ft h e
PerJacobssonFoundation,
was supposed t o be heretoday.
He hadbeen
him n o t t o
looking forward t o i t , b u t u n f o r t u n a t e l y h i s d o c t o r s a d v i s e d
t r a v e l a t t h i s time. I have known RandolphBurgess
f o rd e c a d e s , and I
have learned to love
him and admire him f o r h i s o u t s t a n d i n g c h a r a c t e r I b e l i e v e t h a t oneof
i s t i c s - - a s t r o n g man with strong convictions--and
a man of such conviction
was t h a t he s t a r t e d
the reasons that he has been
outinmaturelifetoeducatehimselffor
a r e l i g i o u s c a r e e r , and I t h i n k
that religious strain never left
him when he took up d i f f e r e n t o c c u p a t i o n s
i n government s e r v i c e and i n p r i v a t e b a n k i n g .
I know t h a t you a l l agree
t h a t we should send him a g r e e t i n g from t h i s m e e t i n g .
Now, s t a r t i n g w i t h the proceedings, f i r s t I must express our thanks
t o Basel-StadtandBasel-Land,
t o t h e U n i v e r s i t y , and t o t h e Bank f o r I n t e r n a t i o n a l S e t t l e m e n t s ; w e thank you for t h e v e r y warm welcome t h a t you
haveextended t o o u rd e l i b e r a t i o n sh e r e .
And I p a r t i c u l a r l y would l i k e t o
express our w a r m thanks to our hosts for the luncheon, the Swiss
Bank Corp o r a t i o n . They havegivenus
a wonderful s t a r t f o r t h i s a f t e r n o o n ' s
work.
And e s p e c i a l l y , I would l i k e t o a d d r e s s myself t o Dr. Burckhardt f o r y o u r
very welcomingremarksand
f o r t h e v e r y complimentary things that
you s a i d
notonlyabout
Dr. Carli--hecananswer
forhimself--butabout
my compaThank you very much.
t r i o t , Dr. PerJacobsson.
The main paper i s going t o b e g i v e n by Dr. Guido Carli. I t h i n k it
i s u n n e c e s s a r yi nt h i sg a t h e r i n gt oi n t r o d u c e
Dr. Carli. I t h i n k t h a t it
wouldbe r a t h e r presumptuous. He i s w e l l known i n t h e wholeworld f o r h i s
v i s i o n , h i s wisdom, h i s knowledge,and h i s warm f r i e n d s h i p s , andhe i s a
man of theworld,notonlyof
one country. I beg now t o e x p r e s s 'ourthanks
t o you, Dr. Carli, f o r g i v i n g u s t h e p r i v i l e g e o f h e a r i n g
you today.
- 2 -
Why Banks Are Unpopular
Guido Cadi
We are going through a p e r i o d i n which t h e banking community has inis certainly the case
c r e a s i n g l y come t o b e r e g a r d e d w i t h h o s t i l i t y ; t h i s
old r o o t s : it i s s a i d
i n my
own
country.Antipathytowardbankershas
ofSchopenhauer t h a t , on v i s i t i n g t h e g a l l e r y where t h e p o r t r a i t s o f t h e
Fuggerwerehungandobserving
t h e i r images,heexclaimed:
"When I look
a t yourfaces I have t o admit t h a t God i s notwithyou."
I propose t o
examine t h e r e a s o n s f o r t h e r e s e n t m e n t
which i s f e l t towardbankersand
banks i n some c o u n t r i e s .
I n e a r l i e r times b a n k i n g f a i l u r e s s t i m u l a t e d i n t e r e s t i n t h e b a n k s '
conductof t h e i r a f f a i r s ; t h i s h a s a l s o happened r e c e n t l y , b u t t o a l e s s e r
degree. One of t h e r e a s o n s f o r t h e
doubtand
suspicionmust, I f e e l , l i e
the financial intermediaries both in interi n t h e wideninginvolvementof
n a t i o n a ls e t t l e m e n t s and i n domesticpayments t r a n s a c t i o n s . The f e e l i n g
of mistrust derives
from a c o n v i c t i o n t h a t t h e commercialbankshaveapp r o p r i a t e d t o o l a r g e a share of monetary sovereignty.
I have no wish t o r e t r a c e t h e l o n g r o a d t o w a r d r e f o r m o f t h e i n t e r nationalmonetarysystem,but
l e t Ice j u s t r e c a l l i t s f i n a l o b j e c t i v e s .
Thesewere
.
.
.
torestricttheuseofthedollar
and settlementcurrency;
as a r e s e r v e , i n t e r v e n t i o n ,
graduallytoeliminategoldfromtheinternationalmonetary
system and replace
it with a r e s e r v e i n s t r u m e n t c r e a t e d
a u t h o r i t i e s ; and
by t h e
t o e s t a b l i s h a new code ofconduct
f o r a system i n which f i x e d
and f l e x i b l e r a t e s e x i s t s i d e
by side.
The attempt by t h e EEC c o u n t r i e s t o s e t up a monetaryzone w i t h i n
which i n t e r v e n t i o n s on t h e f o r e i g n exchangemarketwere
carried out in
currenciesotherthanthedollar,andsettlements
between c e n t r a l banks
were made u s i n g v a r i o u s c u r r e n c i e s i n p r o p o r t i o n s c o r r e s p o n d i n g t o t h e
composition of the debtor country's reserves, lasted
from A p r i l u n t i l J u n e
1972. It was followed by t h e r e i n s t a t e m e n t o f t h e d o l l a r , b o t h
as anint e r v e n t i o n c u r r e n c y and as a n i n s t r u m e n t f o r s e t t l i n g b a l a n c e s .
- 3 -
The r e s o l u t e n e s s shown i n p l e a d i n g t h e need t o exclude gold from
t h ei n t e r n a t i o n a l monetarysystemreaped
i t s reward.Withoutany
fear
was more s p e c t a c u l a r t h a n exof paradox it may b e s a i d t h a t t h e r e s u l t
a gradualdisplacement, what happened was tantamount
p e c t e d :i n s t e a do f
of gold held in official
t o a t o t a l e r a d i c a t i o n by v i r t u e o f t h e f r e e z i n g
r e s e r v e s . One exception was t h e m o b i l i z a t i o n o f
a small q u a n t i t y o f t h e
metal in the crossed deposit operation
between t h e Deutsche Bundesbank
and t h e Banca d ' I t a l i a i n September 1974.
The f r e e z i n g of gold coincided with the
emergence o f g r e a t e r d i s e q u i l i b r i a i n payments b a l a n c e s i n t h e wake o f t h e i n c r e a s e i n t h e p r i c e
ofoil:inonly
a few c o u n t r i e s had t h e i n t e r n a t i o n a l l i q u i d i t y p r e v i o u s l y c r e a t e d augmented t h e o f f i c i a l r e s e r v e s , w h i l e t h o s e
more exposed t o payments d e f i c i t s h e l d g o l d i n t h e i r r e s e r v e s ;
the shortageof
i n t e r n a t i o n a l l i q u i d i t y was made upby t h e b a n k s , a n d i n l a r g e
measure
by t h e Americanbanks t h r o u g h t h e i r o v e r s e a s b r a n c h e s .
The s c a l e o f i n t e r m e d i a t i o n
by commercialbanks i n t h e f i n a n c i n g of
theoilimporters'deficits
and t h e o i l e x p o r t e r s ' s u r p l u s e s
i s noted by
some w i t h s a t i s f a c t i o n :
market f o r c e s , t h e y s a y ,
made up for theindol e n c eo ft h ea u t h o r i t i e s .O t h e r ss e e
it as c o r r o b o r a t i o n o f t h e e v i l
intentions of the authors of reform, maintaining that the eradication of
gold from the system and t h e f a i l u r e t o r e p l a c e
it w i t h o f f i c i a l i n s t r u mentsconfirm a malicious design t o s t r e n g t h e n t h e dominant p o s i t i o n of
t h e American banks.
I do n o t s u b s c r i b e t o t h e s e i n t e r p r e t a t i o n s ;
on t h e c o n t r a r y , . I bel i e v e t h a t t h e r e was a l a c k o f c l e a r v i s i o n
as t o t h e consequences of the
I t o om a i n t a i nt h a tt h e
a t t i t u d e sa d o p t e d .C l e a r l y ,l i k ee v e r y o n ee l s e ,
v i s i o n was l a c k i n g i n o t h e r s ; I s h a l l t h e r e f o r e q u o t e m y s e l f .
On March 5 , 1974, I w r o t e i n t h e Europeanpagesof
t h e f o u r major
European d a i l i e s : "It would be as w e l l t o t a k e a c l o s e r l o o k a t o t h e r
If it were t o t a k e t h e
aspectsofthe
growthof theEuro-dollarmarket.
c o u r s e d e s c r i b e d t h e r e would be an expansion,
on t h e one hand, of the
Euro-banks' s i g h t l i a b i l i t i e s a n d ,
on t h e o t h e r , o f t h e i r c l a i m s i n t h e
form o f l e n d i n g t o t h e o i l i m p o r t i n g c o u n t r i e s
at maturities in the range
ofseven t o e i g h t y e a r s . I n t h e s e c i r c u m s t a n c e s t r a n s f e r s o f f u n d s
from
onebank t o a n o t h e r andfrom the banking sector
as a whole t o t h e market
f o r government securities could produce
a l i q u i d i t y c r i s i s which only the
i n t e r v e n t i o n o f a l e n d e r o f l a s t r e s o r t would b e a b l e t o r e s o l v e .
Under
a f l o a t i n g exchange r a t e s r e g i m e , s h i f t s o f f u n d s
from t h e Euro-market
t o n a t i o n a l m a r k e t s and v i c e v e r s a wouldbe r e f l e c t e d i n exchange r a t e
fluctuations which, in the absence of coordinated intervention
by t h e
assume such proportions as t o d i s r u p t i n t e r n a t i o n a l
centralbanks,could
t r a d e . 'I
it i s wanting in respect toward
my formerfellowcenwas an absence of coordinated central
bank
i n t e r v e n t i o n . I b e l i e v e t h a t one o f t h e r e a s o n s l i e s i n t h e d i f f i c u l t y
of r e c o n c i l i n g t h e i n t e r e s t s of countries whose e x p o r t s a r e s e n s i t i v e t o
Thosewhose e x p o r t s a r e l e s s
exchange rate movements i nv a r y i n gd e g r e e s .
rensitive t e n d , i n f o r m u l a t i n g o b j e c t i v e s , t o g i v e p r i o r i t y t o s h i e l d i n g
the domesticmarketfrom
the liquidity repercussions of flows of funds
from abroad; they are t h e r e f o r e more i n c l i n e d t o c u s h i o n t h e i m p a c t o f
theme flows on exchange r a t e f l u c t u a t i o n s .
I do n o t f e e l
t r a l bankers t o s a y t h a t t h e r e
-4-
The need f o r c o o r d i n a t i o n was solemnlyaffirmed i n November 1975
by headsof s t a t e , heads of government, and ministers meeting in
a
c h g t e a un e a rP a r i s .I n s p i r e d
by thesolemnity of t h e o c c a s i o n , t h e y
d i s c o v e r e dt h ep o t e n t i a lo ft h et e l e p h o n e
on t h r e e l e v e l s : t a l k s
between m i n i s t e r s , between c e n t r a l bank governors, and between foreign exannouncement i n
change d e a l e r s . The same needs were r e a f f i r m e d i n t h e
Jamaica of the new A r t i c l e s o f Agreement o f t h e I n t e r n a t i o n a l Monetary
Fund. Commenting on t h e i rs i g n i f i c a n c e ,t h ef o r m e rF r e n c hM i n i s t e ro f
Financedeclared:
" ' I t i s a greatpresumption t o a t t e m p t t o i n s t i t u t i o n a l i z ea n a r c h y . '
The d r a f t e r s o f t h e
new IMF A r t i c l e s have shown
I f i n d it d i f f i c u l t n o t t o c o n c u r i n t h i s
judgment.
suchpresumption!"
I thought it r e l e v a n t t o r e c o u n t t h e s e e x p e r i e n c e s b e c a u s e
I wanted
to underline the fact that the international
monetarysystemhasevolved
a l o n gd i f f e r e n tp a t h s
from t h o s e mapped out by t h e r e f o r m e r s : t h e p r o cessofinternationalliquiditycreationhasindeedbeendivorced
from
it has become exclugold production o r changes i n t h e g o l d p r i c e , b u t
s i v e l y dependenton t h e s u p p l y o f r e s e r v e c u r r e n c i e s t o t h e s y s t e m a n d ,
i np a r t i c u l a r ,t h a tr e s e r v ec u r r e n c y
which i s i t s p i v o t : t h e
U.S. d o l l a r .
In the five years
between 1970 and 1976 t o t a l i n t e r n a t i o n a l l i q u i d i t y
reserves soared from US$93 m i l l i a r d t o US$227 milliard--an increase of
US$l35 m i l l i a r d . By far t h e l a r g e s t component w a s made upofcurrency
r e s e r v e s , which r o s e by ~ ~ $ 1 1
m 6i l l i a r d . The major p a r t o f t h e i n c r e a s e
a t t h e endof 1975 o f f i c i a l d o l l a r c l a i m s
c o n s i s t e do fc l a i m si nd o l l a r s :
on t h e U n i t e d S t a t e s s t o o d
at ~ ~ $ m
8 i 0l l i a r d a n d c l a i m s i n d o l l a r s
and
o t h e r c u r r e n c i e s on t h e Euro-market stood a t about the same amount.
The long-term and short-term foreign indebtedness of the United States
jumped from US$47 m i l l i a r d at t h e end of 1970
t o ~ ~ $ 1 2 6 m i l l i aartd t h e end
of 1975, and i t s l i a b i l i t i e s v i s - & v i s o f f i c i a l i n s t i t u t i o n s
from US$24
milliard t o ~ ~ $ m
8 i 0l l i a r d , o f which US$49 m i l l i a r d was toward o f f i c i a l
institutions.
The bankingsystemplayed
a large part in t h i s process, contributing
to the creation of international liquidity through the expansion of credit.
A t t h e end of 1972, short-term lending
by t h e American banks amounted t o
~ ~ $m
1 i6l l i a r d , and at t h e endof 1975 t o US$50 m i l l i a r d . A t t h e end of
1973, Euro-bank c r e d i t s t o t a l e d US$132 m i l l i a r d , and a t t h e endof 1975
US$197 m i l l i a r d . T h i s
1endi.ng r e p r e s e n t e dt h ec o u n t e r p a r to fd e p o s i t s
whichflowed e i t h e r i n t o o f f i c i a l r e s e r v e s o u t s i d e t h e U n i t e d S t a t e s ,
l a r g e l y from t h e OPEC c o u n t r i e s , o r i n t o t h e l i q u i d asset holdings of commercial banks and individuals in the
same c o u n t r i e s .
The hugeexpansionof
the Euro-dollar market occurred in the
twoy e a r p e r i o d 1974-75 in conjunction with the accumulation of surpluses
by
t h e OPEC c o u n t r i e s ; r e l i a b l e e s t i m a t e s p u t t h e s u r p l u s e s a c c u m u l a t e d d u r i n g t h i s p e r i o d at US$101 m i l l i a r d ; t h e s h a r e f l o w i n g t o o f f i c i a l i n s t i t u t i o n s was US$43 m i l l i a r d and t h e c u r r e n c y p o r t i o n was US$38 m i l l i a r d .
The remainder went t o n o n o f f i c i a l i n s t i t u t i o n s and was i n p a r t p l a c e d i n
f i n a n c i a l , r e a l , and d i r e c t i n v e s t m e n t s and i n p a r t h e l d i n l i q u i d
form;
a t t h e endof 1975 t h e p o r t i o n h e l d i n t h e
formof d e p o s i t s w i t h banks i n
t h e U n i t e d S t a t e s was about US$9 m i l l i a r d , t h e r e m a i n d e r b e i n g d e p o s i t e d ,
Euro-market,where
foreither in dollars or in other currencies, in the
eign branches of
American bankswere o p e r a t i n g on a n i n c r e a s i n g s c a l e .
- > -
The p r o c e s s o f e x p a n s i o n o f i n t e r n a t i o n a l f i n a n c i a l i n t e r m e d i a t i o n
c h i e f l y i n v o l v e d t h e American banks:between1972and
1975 t h e t o t a l
assets and l i a b i l i t i e s o f t h e U.S. banks' foreign branches rose from
~ S $ 7 8 m i l l i a r d t o ~ S $ 1 7 6 m i l l i a r d - - a n i n c r e a s e whichexceeded t h e r i s e
i n M 1 and M2 i n t h e domestic U.S.economy
o v e r t h e same period.This
development i s p l a i n l y r e f l e c t e d i n t h e b a l a n c e s h e e t s o f t h e m a j o r b a n k s :
at December 31, 1975 t o t a l d e p o s i t s i n t h e books o f t h e Bank o f America
5 i6l l i a r d ; d e p o s i t s a t i t s foreign branches amounted t o
stood a t ~ ~ $ m
US$23 m i l l i a r d . Some 41 percentofearnings,against
29 p e rc e n ti n
the previous year, accrued
from i t s i n t e r n a t i o n a l b u s i n e s s a c t i v i t i e s .
T o t a l d e p o s i t s i n t h e books of Citibank amounted t o US$45 m i l l i a r d , and
US$25 m i l l i a r d . The corresponding
d e p o s i t s at i t s f o r e i g nb r a n c h e st o
f i g u r e s f o r Chase Manhattanwere US$34 m i l l i a r d and US$15 m i l l i a r d , r e s p e c t i v e l y . Morgan Guarantyannounced t h a t i n December 1975 approximately one h a l f o f i t s outstanding loans werethrough i t s overseas
branches.
The s c a l e o f t h e
American b a n k s ' p a r t i c i p a t i o n would beeven more
striking with the inclusion of nonresidents' deposits with these banks'
domestic branches, figures for
which are not published.
The f i g u r e s r e c o r d e d s u g g e s t t h a t d u r i n g t h i s p e r i o d t h e i n t e r n a t i o n a l monetarysystem s h i f t e d o u t o f t h e
domain o f t h e o f f i c i a l i n t e r n a t i o n a li n s t i t u t i o n s :t h ep r i v a t eb a n k i n gs y s t e mt o o ko v e rt h ef u n c t i o n s p r o p e r t o an o f f i c i a l i n s t i t u t i o n p o s s e s s e d o f t h e
power t o f i nance balance of
payments d i s e q u i l i b r i a t h r o u g h c r e d i t - g r a n t i n g and t o
c r e a t ei n t e r n a t i o n a ll i q u i d i t y .
The r e a l i z a t i o n t h a t t h i s had come about
has provoked opposite reactions within and outside the United States.
I n a number o f c o u n t r i e s t h e growing i n t e r n a t i o n a l i z a t i o n o f t h e b i g
American banks serves t o r e i n f o r c e h o s t i l i t y toward multinational corp o r a t i o n s . The presenceof bank branchestiedtodecision-makingcenters
i nt h eU n i t e dS t a t e sr o u s e sf e a r so f
a loss ofsovereignty.Conversely,
in the United States, there
i s growing alarm t h a t t h e hugeexpansionof
operations abroad might
compromise t h e American banks' autonomybyexposing them t o t h e r i s k o f w i t h d r a w a l s
by t h i s or t h a t f o r e i g n d e p o s i t o r
and i n s o l v e n c i e s among t h o s e c o u n t r i e s which a r e major debtors.
The r a t i n g o f c r e d i t s a c c o r d i n g t o t h e c o u n t r y o f t h e b o r r o w e r
and
their allocation according to the
presumed degree of solvency has caused
c o n t r o v e r s yi n my country. The f i r s t news o f t h i s p r a c t i c e
became p u b l i c
i n September 1974; t h e r a t i n g g i v e n t o I t a l y o c c a s i o n e d c o n s i d e r a b l e
alarm b o t h i n t h e c o u n t r y i t s e l f
and abroad, and
it cannot be ruled out
t h a t t h i s added momentum t o t h e wave of deposit withdrawals
from I t a l i a n
bankswhichbrokeout
i n t h e summer o f t h a t y e a r .
The I t a l i a n banks met
these withdrawals by mobilizing foreign claims.
Fuller d e t a i l s on t h e r a t i n g o f
U.S. banks' foreign loans contained
i n t h e bank e x a m i n e r s ' r e p o r t s a p p e a r e d i n t h e p r e s s i n J a n u a r y o f t h i s
year.InItalythere
were a g a i n o u t c r i e s at t h e p l o t , and t h e American
conspiracy was blamed as oneof the causes of the monetary events of that
month. But t h i s shouldnotgivecausefor
wonder:have
we notseen how
i n o t h e r times, i n c o u n t r i e s whichhadgiven
b i r t h t o Immanuel Kant and
G a l i l e o G a l i l e i , o f f i c i a l e x p l a n a t i o n s l a i d s h o r t a g e , unemployment , and
f l i g h t s of c a p i t a l at the door of the treasonous activities of the
Jews?
The assumption by the private banking system of the function of
clearing union, which according t o Keynes ought t o havebeenperformed
- 6 -
a
by t h e I n t e r n a t i o n a l MonetaryFund,
inevitably brought it t o t h e f o c u s
of t h ep u b l i ca u t h o r i t i e s 'a t t e n t i o n .
The i n t e r n a t i o n a li n s t i t u t i o n s
which are appointed to finance growth
anddevelopment generally adopt a
country-by-country credit rating; the private banker tends to place
It
greatestweight on t h ec r e d i t w o r t h i n e s s of theindividualborrower.
is hardlysurprising,therefore,
i f t h e government i n s p e c t o r i n s i s t s t h a t
he apply a n a t i o n a l r e l i a b i l i t y r a t i n g , p a r t i c u l a r l y i n
a p e r i o d i n which
therehastendedtobe
a shift in lending fromthe economically stronger
t o t h e e c o n o m i c a l l y weaker c o u n t r i e s .
Many of those present
w i l l recall the climate of anxiety in
which
t h e Committee of Twenty met i n Rome i nJ a n u a r y 1974. Thismeetingtook
place only a fewmonths a f t e r announcements i n N a i r o b i o f
imminentsuccessinthereformoftheinternationalmonetarysystem.Duringthe
meeting,anauthoritativevoicespokeinwarningthatthesituationcrewas unmanageable. I n t h e e v e n t ,
a t e d by t h e q u a d r u p l i n g o f t h e o i l p r i c e
it s o o n e r t h a n a n t i c i theindustrialcountriessucceededinmastering
pated. But t h e problemsoftheeconomically
weaker countrieshave grown.
The r a p i d improvement i n t h e i n d u s t r i a l c o u n t r i e s ' c u r r e n t a c c o u n t
payments balancefound i t s c o u n t e r p a r t i n a d e t e r i o r a t i o n o f t h e p o s i t i o n
o ft h ed e v e l o p i n gc o u n t r i e s .I nt h ef i v e - y e a rp e r i o d
1968-72 t h e s e countries' current account deficit
had held steady a t around US$^ m i l l i a r d a
y e a r ; i n 1 9 7 3 it r o s e t o US$9 m i l l i a r d , i n 1974 t o ~ ~ $m2i l6l i a r d , and i n
1975 t o US$35 m i l l i a r d . I n
t h i s l a s t y e a r t h e groupofcountries
w i t h an
a n n u a l p e r c a p i t a income ofunder US$375 accounted for about
60 per cent
o ft h ed e v e l o p i n gc o u n t r i e s 'o v e r a l ld e f i c i t .T h i sc o n f i r m st h a t ,w h i l e
preservingtheoilexporters'surplus,thepoliciesconducted
by t h e
stronger countries to reduce their deficit concentrated the negative eff e c t s on t h e weaker c o u n t r i e s . It shouldbe added t h a t i n 1975 theburden
borne by t h e s e c o u n t r i e s i n s e r v i c i n g t h e i r f o r e i g n d e b t r o s e t o
some 12
per cent of the value of their exports; this total
i s distributedunevenly
among i n d i v i d u a l c o u n t r i e s , and f o r some t h e p e r c e n t a g e i s much h i g h e r .
With t h e improvement i n t h e i r e x t e r n a l p o s i t i o n , t h e i n d u s t r i a l
count r i e s have become l e s s a c t i v e as borrowers i n t h e i n t e r n a t i o n a l c a p i t a l
market; t o some e x t e n t t h e i r p l a c e has been taken by t h e d e v e l o p i n g count r i e s . Between 1973and 1975 t h e t o t a l amount ofloansgranted
on t h e
US$^. 3 m i l l i a r d t o US$13.2
i n t e r n a t i o n a l c a p i t a l market increased from
milliard.
A t t h e endof 1975, w i t h t h e t o t a l of loans outstanding amounting
t o about US$120 m i l l i a r d , t h e p r o p o r t i o n a c c o u n t e d f o r
by o f f i c i a l b o r rowing was 56 p e r c e n t .
I n 1976 it i s e s t i m a t e d t h a t t h e d e v e l o p i n g c o u n t r i e s ' d e f i c i t , i n w i l l come
cludingredemption and i n t e r e s t s e r v i c e on t h e i r e x t e r n a l d e b t ,
t o US$42.5 m i l l i a r d . It should, however,bepointedoutthatthisestiw i l l reduce the
mate i s based on t h e a s s u m p t i o n t h a t r e s t r i c t i v e m e a s u r e s
l e v e l of t h e i r i m p o r t s ; it p r o b a b l y a l s o assumes an expansion of their
exports, pulled along
by the recovery of production in the major indust r i a l c o u n t r i e s , on a s c a l er e g a r d e d by some e x p e r t s as o p t i m i s t i c . I f
all I
M
F f a c i l i t i e s were a c t i v a t e d , i n t e r n a t i o n a l a g e n c i e s
would c o n t r i b u t e
P a r t oftheremainder
up t o ~ ~ $m2i l8l i a r d t o w a r d f i n a n c i n g t h i s d e f i c i t .
would be covered by export credits; but this
would s t i l l l e a v e a substant i a l amount t o be met by t h e i n t e r n a t i o n a l bankingsystem,andhence,
c h i e f l y byAmerican banks.
- 7 -
From t h e s i t u a t i o n j u s t d e p i c t e d c e r t a i n c o n c l u s i o n s
may bedrawn.
The most important, I t h i n k , i s t h a t t h e r e i s at present no i n t e r n a t i o n a l
monetarysystem, t h a t i s , t h e r e i s no o f f i c i a l i n s t i t u t i o n c a p a b l e o f
s u p p l y i n g t h e i n t e r n a t i o n a l paymentssystem w i t h t h e l i q u i d i t y r e q u i r e d
for t h e f u r t h e r e x p a n s i o n o f t r a d e .
This functionhasbeentakenover
by the private banking system,
and p r i m a r i l y by t h e U.S. banks, through
o p e r a t i o n sc a r r i e do u t
by t h e i r b r a n c h e s a t home and abroad. The p r i v a t e
bankshave shown a g r e a t e r a b i l i t y t h a n t h e o f f i c i a l i n s t i t u t i o n s n o t o n l y
to create the necessary liquidity for the
developmentof t r a d e b u t a l s o t o
organize i t s e f f i c i e n t d i s t r i b u t i o n .
A s a r e s u l t , t h e IMF's a b i l i t y t o e n f o r c e o b s e r v a n c e o f r u l e s o f
conducthasdiminished;
it shouldbe remembered t h a t , as o r i g i n a l l y c o n c e i v e d ,
t h e F u n d ' s p r e s c r i p t i v e powers derived from i t s a b i l i t y t o e x c l u d e r e f r a c A s almost a l l c r e d i t i s
t o r yc o u n t r i e s from a c c e s s t o c o n d i t i o n a l c r e d i t .
now drawn f r o m o t h e r t h a n o f f i c i a l s o u r c e s , t h e F u n d ' s a b i l i t y t o l a y
down
conditionshasbeencorrespondinglyreduced.
And as t h e f u n c t i o n o f c r e ating international liquidity has
been t r a n s f e r r e d from o f f i c i a l i n s t i t u so thetaskofsupervisionhaspassed
from i n t e r tions to private ones,
national bodies to national ones,
whose surveillance, though keener than
in the past, has nonetheless never reached
beyond the boundaries of
national interests.
Furthermore,theachievementof
t o t a l independence by countries
which
in the past only enjoyed limited sovereignty has resulted in
a greater
d i f f e r e n t i a t i o n o f economic s t r u c t u r e s . The areaoccupied by t h e market
economy hasbeennarrowed,and
i n some countries completely replaced by
government i n t e r v e n t i o n . The g r e a t e rt h er e c o u r s et o
government i n t e r v e n t i o n , t h e more d i f f i c u l t it becomes t o achieve coordination on t h e
internationallevel.
The goldstandardprovidedforonly
one typeofint e r v e n t i o n , p u r c h a s e s and s a l e s o f g o l d
when t h e exchange r a t e l e v e l
reached the gold points; this rule
was observed by t h e m a j o r i t y o f countries.
In the absence of
a lender of l a s t r e s o r t , t h e b a r r i e r t o t h e p r i o f a clearing union i s t h e
vate banking system taking over the function
c r e d i t w o r t h i n e s so ft h ed e b t o rc o u n t r i e s .
As I have a l r e a d ys a i d ,t h e
burden o f the economically weaker c o u n t r i e s i s t e n d i n g t o grow; but it i s
doubtful whether a systembased on p r i v a t e i n s t i t u t i o n s can support it.
The a b i l i t y o f t h e s y s t e m t o
expand i s consequently nearing i t s limits.
It i s p o s s i b l e t h a t as t h e s e limits are approached, balance of
payments
e q u i l i b r i u m may have t o besought at progressively lower levels o f economic activity--and primarily
a t t h e expense of the
weaker c o u n t r i e s .
The dimensionof t h e problems c a l l s for g r e a t e r c o o p e r a t i o n among c e n t r a l
monetary i n s t i t u t i o n s ; r e c e n t d e c i s i o n s a r e e n c o u r a g i n g .
It may be added that there
i s evidence in several quarters that
American m u l t i n a t i o n a l companieshavebegun
a slow movement of withdrawal.
This may havebeenpromptedby
a number of factors--not l e a s t t h e narrowing of the gap
between l a b o r c o s t s i n some of t h e c o u n t r i e s i n which t h e s e
companieshave s e t up s u b s i d i a r i e s a n d t h o s e i n t h e U n i t e d S t a t e s .
Obviously, the transition to
economicsystems i n which t h e s t a t e i s extendi n g i t s i n f l u e n c e i s r e s t r i c t i n g t h e a r e a i n which m u l t i n a t i o n a l companies
can operate and inducing
some of them t o move out of areas
where t h e r e i s
a greaterdegreeofsocialismtothose
where t h e r e i s l e s s . On t h e o t h e r
hand, there has been
a change of a t t i t u d e toward multinational companies
i n some of t h o s e c o u n t r i e s where o p p o s i t i o n t o them used t o b e g r e a t e s t .
- 8 -
I n I t a l y , for example, now t h a t t h e r e are more obvious signs of the
multinationals withdrawing from our market, the
same p o l i t i c a l p a r t i e s
which not long ago regarded
them w i t h h o s t i l i t y a r e o p e n l y b e w a i l i n g
so f a r as t o p r o p o s e r e s i s t i n g it.
t h e i r d e p a r t u r e andhaveevengone
It i s q u i t e c o n c e i v a b l e t h a t t h e r e t u r n o f t h e m u l t i n a t i o n a l s w i t h i n n a t i o n a l b o u n d a r i e s may i n t i m e i n d u c e a r e a c t i o n i n bankswhich,
f o r t h e i r p a r t , had establishedbranchesabroad.
A c o n s t r a i n t would t h u s
be s e t on t h e f i n a n c i n g of imbalances i n world trade not only
by t h e l i m ited credit-granting capacity
of t h e e x i s t i n g i n s t i t u t i o n s b u t a l s o
by
the reduction in their
number.
Inshort,thecurrentwithdrawalof
American i n d u s t r i a l and financ i a l e n t e r p r i s e s i n response t o h o s t i l i t y i n c o u n t r i e s i n
which n a t i o n a l i s t i c a t t i t u d e s a r e re-emerging could further loosen the bonds which have
held together the structure of the international
economy i n t h e l a s t few
years.
Evidenceofthe
U.S. banks' waning enthusiasm for expansion abroad
canbededucedfrom
t h e growing i n t e r e s t shown in extending merchant
bankingoperations.
It may b e ,h o w e v e r ,t h a tt h i st r e n dw i b li n c r e a s e
t h e m i s t r u s t f e l t by t h o s e who f e a r t h e consequencesofanexcessive
concentration of power i n t h e bankingsystem.
I havedwelt a t l e n g t h on t h e b a n k s ' r o l e i n t h e
development o f t h e
i n t e r n a t i o n a l f i n a n c i a l andmonetarysystembecause
this role has given
f r e s hm o t i v a t i o nt ot h el o n g - s t a n d i n gu n p o p u l a r i t yo fb a n k e r s .T h e r e
is
somethingschizophrenicinthefactthat,whiletheinternational
communityproves t o be incapable of governing monetary events through
cooperation in international institutions, their substitution
by p r i v a t e
i n s t i t u t i o n s i s f e a r e d as a l o s s o f c o n t r o l b o t h
by t h e c o u n t r i e s o f
o r i g i n andby t h e h o s t c o u n t r i e s .
The unpopularityofbankers
stems
from t h e growing h i a t u s between t h e s i z e o f t h e
problemsand the inadequacy o f t h e i n s t i t u t i o n s c a l l e d
upon t o r e s o l v e them.
But t h e same d i f f i c u l t i e s and t h e same d i s s a t i s f a c t i o n a r e found i n
t h e r o l e p l a y e d by t h e b a n k s w i t h i n t h e i r own c o u n t r i e s , where t h e problems and c o n f l i c t s t h a t have emerged i n t h e l a s t few y e a r s a r e no l e s s
great.
Concern at the concentration of
power ' i n t h e hands o f t h e banks l i e s
behind the appeal
made by t h e p o l i t i c a l p a r t i e s f o r
more rigorous superv i s i o n and f u l l e r . i n f o r m a t i o n . One circumstancethathashelpedtoshape
this attitude is the fact that fiscal policy
i s formulated through the
medium of parliamentary debates under the scrutiny of public opinion,
whereasmonetarypolicy
i s framed i n s e c r e t and may i n some c a s e s come
i n t oc o n f l i c tw i t hf i s c a lp o l i c y .
Nor d o e s t h e f a c t t h a t
it i s p a r t l y
thanks t o i t s autonomousand d i s c r e e t n a t u r e t h a t monetary policy cont r i b u t e s more e f f e c t i v e l y t o t h e r a r e s u c c e s s e s o f
economic p o l i c y r e n d e r
any more a c c e p t a b l e t h i s elementofsecrecy
which i s s t i l l i t s d i s t i n guishing t r a i t .
The power of the banks and the need
t o b r i n g it within narrower
bounds a r e t o p i c s o f d e b a t e i n my c o u n t r y w i t h i n t h e p o l i t i c a l p a r t i e s ,
t h et r a d eu n i o n s ,
and t h e u n i v e r s i t i e s .
The headof
t h e Communist p a r t y ' s
planning department recently published
a survey examining the causes of
the increase in the
economic power of the banks;
heconcludedby
calling
- 9 -
for the creation of
a c a p i t a l marketwhere t h e r e c o u l d b e more d i r e c t
contact between e n t e r p r i s e s and savers andwhere t h e y would be offered
a wider range of financial instruments.
In general the proposals for reform of the banking system put forward i n I t a l y stemfrom the mistaken conviction that the -changes that
haveoccurred i n I t a l y ' s f i n a n c i a l s t r u c t u r e a r e r a d i c a l l y d i f f e r e n t
from
those that havetakenplaceinothercapitalistcountries;there
have
been differences a t times i n t h e number ofchanges,butnot
in their
n a t u r e . The p r o p o s a l s t o which I have r e f e r r e d are based on t h e b e l i e f
i s a feature
t h a t t h e low r a t i o o f s h a r e s t o o t h e r f i n a n c i a l i n s t r u m e n t s
p e c u l i a r t o my country. I have on more than one occasion drawn a t t e n t i o n
1975 i n t h e U n i t e d S t a t e s , o f t h e
~ ~ $ 2 0m8i l l i a r d
to the fact that in
worth of funds raised
on t h e c a p i t a l m a r k e t s , b a r e l y
US$11 m i l l i a r d was
taken up i n t h e formof s h a r e s .
Likewise, I h a v e p o i n t e d o u t t h a t o f t h i s t o t a l o f
~~$20
m8
illiard,
t h e Government and t h e p u b l i c s e c t o r ( i n c l u d i n g t h e l o c a l a u t h o r i t i e s )
from the proporabsorbed approximately half,
which i s n o t v e r y d i f f e r e n t
a t thepresenttime.
But i n I t a l y t h e p u b l i c s e c t o r ,
betioninItaly
sidesdrawing from t h e c a p i t a l m a r k e t , c l a i m s f u r t h e r p o r t i o n s o f
t o t a l f i n a n c i n g b o t h by d i r e c t r e c o u r s e t o bank c r e d i t and by d e f e r r i n g
payment f o r goodsand s e r v i c e s p u r c h a s e d ; m o r e o v e r , b e i n g l a r g e l y a t t r i b utabletocurrentexpenditure,theItalianpublicsector'sdeficit
is
less flexible than the
U.S. one.
Lastly,inthepast
decade a l l i n d u s t r i a l c o u n t r i e s haveexperienced
f a l l i n g p r o f i t s , a declining propensity to invest,
andan i n c r e a s e i n f i n a n c i a li n t e r m e d i a t i o n .I n
a speech at a conference a t HarvardUniversity,
Henry Wallichobserved:"Corporationshavefinanced
t h i s growth by s h i f t i n g away from i n t e r n a l andtoward e x t e r n a l s o u r c e s of funds, away from
equity financing and toward debt,
andfromlong-termdebt
to short-term
d e b t . These t r e n d si nf i n a n c i n gh a v ep r o d u c e df i n a n c i a ls t r u c t u r e st h a t
make a d d i t i o n a lf i n a n c i n gd i f f i c u l t .
It i s u s e l e s s t o a r g u e t h a t i f i n ternalcashflow
i s inadequate, and i f t h e s t o c k market i s n o t r e c e p t i v e
t oe q u i t yi s s u e s ,b u s i n e s ss h o u l dj u s tc o n t i n u et o
borrow.Thisadvice
i s l i k e Queen MarieAntoinette's'Let
them e a t c a k e . '
Where t h e r e i s not
enough p r o f i t , t h e r e w i l l be no equity financing, and
where t h e r e i s not
enough e q u i t y , t h e r e w i l l notbe much debt money a v a i l a b l e . An adequate
i s thebasisfordebtfinancing,equityfinancing,and,
f l o wo fp r o f i t s
o fc o u r s e ,i n t e r n a lf i n a n c i n g . ' '
In Italy the result
of t h e d e c l i n e i n p r o f i t s
and t h e d e f i c i e n c y o f
r i s k c a p i t a l h a s been the transfer of
firms from t h e p r i v a t e s e c t o r t o
thepublicsector,
and t h i s h a s happened a t a time when t h e p u b l i c s e c t o r
was p r o g r e s s i v e l y l o s i n g i t s a b i l i t y t o measure t h e e f f i c i e n c y o f i t s r e s o u r c eu t i l i z a t i o n .
Meanwhile, as i no t h e ri n d u s t r i a lc o u n t r i e s ,t h e r e
hasbeen a growingtendencyoverthe
l a s t decade for large groups to increase in size, partly
by a s s i m i l a t i n g s m a l l e r f i r m s ,
and t h i s p r o c e s s ,
in turn, has helped to quicken the pace of expansion of the public sector:
i n t h e end it has become e v i d e n t t h a t it i s n o t t h e s t a t e t h a t r u l e s t h e
This i s t h er e a s o n
e n t e r p r i s e sb u tt h ee n t e r p r i s e st h a tr u l et h es t a t e .
a standagainsttheexcessive
why i n I t a l y t h e Communist party has taken
power o f p u b l i c e n t e r p r i s e s .
To t h e f o r e i g n o b s e r v e r
it may appearparadoxical;butin
a s i t u a t i o n such as e x i s t s i n I t a l y at p r e s e n t , a p a r t y
whose aim i s t o s t r e n g t h e n t h e a u t h o r i t y of t h e s t a t e must seek t o encourage t h i s by b r i n g i n g t h e s t a t e b a c k t o t h e a r e n a o f
i t s fundamental
d u t i e s , and l i m i t i n g t h e f i e l d of those which are sources of contamination.
-
10
-
- I n a l l countriesthelackofcontinuityinthe
economicsystemhas
beenan o b s t a c l e t o t h e s u c c e s s o f
demand management p o l i c i e s a t a time '
when changes i n t h e t e r m s o f t r a d e
havebeen makingthem more necessary.
Everywhere therehasbeen
a p e r c e p t i b l es h i f ti nt h eP h i l l i p sc u r v e :t h e
cost of maintaining
a given level of
employment i s i n c r e a s i n g l y h i g h r a t e s
ofinflation;thecostofpricestability
i s everhigherratesof
unemployment.Inthesecircumstances
more i s beingrequiredofthebanking
to the detriment,
system as an organ of propagation of monetary policy,
i n some c a s e s , o f i t s d i s t r i b u t i v e f u n c t i o n , t h e i m p o r t a n c e
ofwhich,
however,hasbeenenhancedby
t h e i n c r e a s i n g r i f t betweeninvestment and
dependence on e x t e r n a l
saving. A t t h e same t i m e ,e n t e r p r i s e s 'i n c r e a s e d
financing has meant t h a t t h e y a r e more exposed t o changes i n t h e volume
and c o s t o f f i n a n c i n g ,
and t h i s has made t h e monetary a u t h o r i t i e s more
andsometimes more i n c l i n e d
r e l u c t a n t t o introducerestrictivemeasures,
to delay changes in their policy course,
so t h a t when t h e s e measures
f i n a l l y come t h e i r impact i s more v i o l e n t . Calls f o rt h ea d o p t i o no f
selective policies and, with
them,ofcompulsoryplanningarebeingheard
with increasing frequency.
P a r a l l e l t o t h a t of e n t e r p r i s e s , t h e f i n a n c i a l i m b a l a n c e o f t h e
publ i c s e c t o r hasbeenaggravated
bygrowing demand f o r a c t i o n i n t h e s o c i a l
f i e l d andbyan
economic theory which argues that in conditions
ofunderemployment o f r e s o u r c e s , d e f i c i t s p e n d i n g
expands income and c r e a t e s t h e
s a v i n g sn e c e s s a r yt of i n a n c ei t s e l f .
The c o n f l i c t which h a sa r i s e ni n
more than one case between t h e p u b l i c a d m i n i s t r a t i o n
and e n t e r p r i s e s w i t h
regard to the distribution
of household savings has obliged the authorit i e s t o s i f t throughtheinstrumentsavailableto
themand s e a r c h f o r
means o f r e c o n c i l i n g t h e d i f f e r e n t o b j e c t i v e s ; t h i s c o u l d n o t l e a v e t h e
banking system unscathed.
Thus, i n r e c e n t y e a r s t h e p u b l i c s e c t o r ' s f i n a n c i a l d e f i c i t h a s i n
many c o u n t r i e s had profound repercussions
on t h e s t r u c t u r e o f t h e c r e d i t
i n s t i t u t i o n s . Not onlyhavethemonetaryauthorities
had t h e c o n t r o l of
t h e monetary base taken out of their hands, this having
become i n c r e a s ingly dependent on treasury requirements, but they have been given the
t a s k of obliging the banking system
t o t a k e up p u b l i c s e c u r i t i e s , t h e r e b y
changing the structure of the banks' balance sheets
and r e s t r i c t i n g t h e i r
a b i l i t y t o r e g u l a t e flowsoffundsand
i n t e r e s tr a t e s .
For t h e i r p a r t ,
thebanks,forcedtooperate
as c o l l e c t o r s o f s a v i n g s i n o r d e r t o c h a n n e l
them t o t h e p u b l i c s e c t o r ,
have l o s t somethingof t h e i r f i n a n c i a l imagin a t i o n ; and t h i s h a s l e d t o
animpoverishmentof
the productive system.
The s c a l e o f o f f i c i a l i n t e r v e n t i o n o f t h i s n a t u r e h a s
shown t h a t ,
when t h e a u t h o r i t i e s do not exercise coercion
bymaking u s e o f t h e i r
power t o l e v y t a x e s , t h e y a r e f o r c e d t o e x e r c i s e
it by p u t t i n g p r e s s u r e
on t h e i n s t i t u t i o n s t h a t o p e r a t e i n t h e c r e d i t s e c t o r .
The crowdingout
of e n t e r p r i s e s may bebroughtabout
by d i f f e r e n t means.Auctionsof
publicsecuritiesare
one way; b u t t h i s i s a s o l u t i o n t h a t o n l y h a s t h e
appearance of being
a r e j e c t i o n of coercion when t h e a u t h o r i t i e s a r e p r e pared t o payany r a t e of interestwhatsoever."Underlyingthe
problem
its role of distributing
savof t h e b a n k i n g s y s t e m ' s a b i l i t y t o p e r f o r m
or t h e
ings i s t h e problemof t h e r e l a t i o n between t h e ' f i s c a l ' e l e m e n t ,
elementofcoercion,andthe'credit'
or ' m a r k e t 'e l e m e n ti nt h ef i n a n c i n g
o ft h ep u b l i cs e c t o r ' '
( M . Montiand
T . Padoa-Schioppa, Studg on t h e Banking System , Luigi Einaudi Institute for Monetary,
Bankingand F i n a n c i a l
Research)
.
-
11
-
The changes t h a t h a v e o c c u r r e d i n t h e s t r u c t u r e s o f i n d u s t r i a l
count r i e s have meant t h a t d i s c o n t e n t , p r e v i o u s l y s p r e a d o v e r v a r i o u s s e c t o r s ,
has come t o - b ef o c u s e d on thebankingsystem.
When growingexpenditure
i s financedbyincreasingtaxation,criticism
i s concentrated on t h e
government; when, however, it i s financed by channeling a g r e a t e r amount
of c r e d i t t o t h e p u b l i c s e c t o r
at the expense of the private sector, the
blame i s d i r e c t e d a t t h e b a n k s , i . e . , t h e i n s t i t u t i o n s t h a t h a v e t o t u r n
down p r i v a t e demand.
Something similar happens when t h e c o n t r a c t i o n o f p r o f i t s o b l i g e s
b u s i n e s s e s t o r a i s e a l a r g e r volume offundsthroughlong-andshort-term
credit.
According t o t h e M a r x i s t - L e n i n i s t t h e o r y , t h e f i n a n c i n g o f i n v e s t ment through capital accumulation by e n t e r p r i s e s i s a manifestation of
oppression by t h e m i d d l e c l a s s e s ,
which t h e working c l a s s e s s h o u l d oppose. However, t h ea u t h o r so ft h es u r v e y
on t h e I t a l i a n b a n k i n g s y s t e m
dependence of ent o which I r e f e r r e d e a r l i e r m a i n t a i n t h a t t h e g r e a t e r
t e r p r i s e s on bank f i n a n c i n g i n c r e a s e s t h e l a t f e r ' s
hegemony and r a i s e s
problemsofdistributionof
power similar t o %,hoser a i s e d b y s e l f - f i n a n c i n g .C r i t i c i s m
i s s h i f t i n g from t h ee x c e s s i v e power o f b u s i n e s s t o t h e
excessive power of the banks.
Extension of the banks' realm of influence, excessive
power o f t h e
publicenterprises,increasingexercise
by t h e p u b l i c a u t h o r i t i e s o f t h e i r
power o f c o e r c i o n i n t h e f i n a n c i a l s p h e r e ; b u t , o n t h e o t h e r
hand we can
also say increasing subordination of the banks to the political authorities , of these to the large public enterprises, and of the latter to the
banks. The main f e a t u r e o f t h i s c h a i n o f
dependence i s t h a t t h e sum of
t h el o s s e so f
power i s g r e a t e r t h a n t h a t o f t h e g a i n s .
It i s t h e whole
systemthat i s progressively losing i t s c a p a c i t y t o c o n t r o l i t s e l f , t o
d i r e c t i t s own courseofdevelopmentand--ultimately--togovern
i t s own
future.
I n most i n d u s t r i a l c o u n t r i e s t h e r e
seems t o be a consensus on t h e
advantages of directing
economic a c t i v i t y a c c o r d i n g t o a b a s i c p l a n .
Even i n t h e U n i t e d S t a t e s p o l i t i c i a n s f r o m b o t h p a r t i e s i n
Congresshave
t a b l e d a d r a f t l a w t ot h i se f f e c t .I nI t a l ya d v o c a t e so fp l a n n i n gs a y
is an essential prerequisite for putting
that a selectivecreditpolicy
it i n t o e f f e c t ; t h e banks i n g e n e r a l a r e r e p r o a c h e d f o r n o t h a v i n g a p come from t h o s e
plied a selectivecreditpolicy;oftentheaccusations
c o m p l a i n i n g t h a t t o o much c r e d i t h a s b e e n g r a n t e d t o t h e n e x t
man r a t h e r
t h a nt ot h e m s e l v e s .I nt h i sc a s et h ec h a r g e sl a i d
a t t h ed o o ro ft h e
it i s r e q u i r e d t o do
bankingsystemarebasically
due t o t h e f a c t t h a t
what i s r e a l l y t h e d u t y o f o t h e r s ;
it seems t o me t h a t t h e p l a n n i n g o f
economic a c t i v i t y , i f it has t o b e , s h o u l d b e t h e r e s p o n s i b i l i t y o f
a u t h o r i t i e s who have t o answer f o r t h e i r a c t i o n s t o d e m o c r a t i c a l l y
elected assemblies.
Ininternationalrelationsthebanksof
some c o u n t r i e s are accused
of promoting capital exports and those of others of doing the reverse.
We a r e a g a i n f a c e d w i t h t h e c o n s e q u e n c e s o f t h e a u t h o r i t i e s ' i n a b i l i t y
att o pursue the desired goals of
economic and monetary policy and an
tempt t o d e l e g a t e t h e t a s k t o t h e b a n k s . I n p e r i o d s o f s o c i a l
and pol i t i c a l u n r e s t , i f governmentswish t o c o n t i n u e g i v i n g p r i o r i t y t o t h e
objective of maintaining
communicationbetween t h e i r economies, they must
w i l l move from c o u n t r i e s c o n s i d e r e d t o b e
less s t a b l e
accept that funds
-
12
-
t ot h o s ec o n s i d e r e dt ob e
more s t a b l e . Compensatory i n t e r v e n t i o n would
certainly be possible, neutralizing the effects of inflows
and outflows;
guidelines to this effect
havebeenissuedwithintheEuropean'Economic
Community. But t h e whole body ofprovisions aimed a t curbingoutflows
and i n f l o w s o f c a p i t a l
by means o f r e s t r i c t i o n s - - o f t e n t r i e d ,
always
withoutsuccess--doesnotreflecttheideals
on which t h e Community i s
based.
,
During t h e n i n e t e e n t h c e n t u r y , b a n k s c a r r i e d o u t t h e i r a c t i v i t i e s
surroundedbyanauraofgreatrespect.
Even t h e n , however, i r r e v e r e n t
o f " A l i c e i n Wonderland,"
voices were r a i s e d , s u c h as t h a t o f t h e a u t h o r
"He thoughthe saw a b a n k e r ' s c l e r k /
who p o r t r a y s a b a n k e r ' s c l e r k t h u s :
Descendingfrom t h e b u s : /
He lookedagain, andfound it was/ A hippopotamus:/ ' I f t h i s s h o u l d s t a y t o d i n e , '
he said,/ 'There won't be
much
f o r us. l ' '
Nonetheless, I t h i n k t h a t nowadays it i s p o s s i b l e t o d i n e w i t h
a
bankerwithout fear o f h i s t a k i n g
it a l l . Our experiencetoday a t t h e
luncheon kindly offered
by t h e Swiss Bank Corporation i s p r o o f p o s i t i v e .
MR. WALLENBERG: Thank you, D r . Carli, f o r a remarkablepaper on why banks
I t h i n k t h a t t h e way youhave t r e a t e d t h i s s u b j e c t h a s
are unpopular.
beenremarkable i n many r e s p e c t s . The angles fromwhichyouhavebeen
looking at t h i s problem a r e v e r y w e l l l i s t e d .
I t h i n k t h a t youhave a l s o
t r i e d t o be as balanced as p o s s i b l e , a l t h o u g h I must say as a n o l d p r i v a t e
a l l t h e r e a s o n s why t h e banks a r e
banker t h a t p e r h a p s youhavenotgiven
unpopular. I t h i n k t h a t I could add some , b u t t h e y a r e o f
lesser .importance than the ones that
you have given because
youhave p a i n t e d a p i c t u r e
h e r e which has been created
by and caused by these trends in an evermuch.
changingworld--as
t h i s g a t h e r i n g s o w e l l knows. We thankyouvery
bankYou havegiven a l l o f u s f o o d f o r t h o u g h t - - p u b l i c o f f i c i a l s , p r i v a t e
e r s , n a t i o n a l and i n t e r n a t i o n a l .
Now I t u r n t o Dr. M i l t o n G i l b e r t , who i s going t o makesomecomments
on D r . Carli's speech. Dr. G i l b e r t , we arelookingforwardvery
much t o
economic a d v i s e r i n t h e
your comments. For f i f t e e n y e a r s youwerean
Bank f o rI n t e r n a t i o n a lS e t t l e m e n t s .
You l e f t l a s t y e a r . You a r e now, I
u n d e r s t a n d ,t u r n i n gt ow r i t i n g
a book. We a r e ,o fc o u r s e ,e a g e r l yl o o k ingforward t o t h a t book. But j u s t now
we
a r el o o k i n gf o r w a r dt oy o u r
comments, which we a r e s u r e w i l l be most i n t e r e s t i n g .
- 13 -
Commentary
Milton Gilbert
I have considerable pride in being
added t o t h e l i s t of outstanding
speakersintheseriesoflecturesofthePerJacobssonFoundation,
and
I wantAmbassador Burgessand t h e D i r e c t o r s o f t h e F o u n d a t i o n t o
know
t h a t I g r e a t l ya p p r e c i a t et h eh o n o r .
I had thepleasureofsucceeding
PerJacobsson a t t h e B I Z Bank, as it i s c a l l e d h e r e i n B a s l e ,
and I had
many occasions t o exchangeviews with him. The strongestimpression
that remains with
me i s t h e a b i l i t y hehad t o s t i m u l a t e o n e ' s t h i n k i n g
and t o uncover f o r one t h e emergingmonetaryand
economic problems. I
n e v e r l e f t a meeting with him without the feeling of having been intell e c t u a l l y r e c h a r g e d , and I f e e l i n d e b t e d t o him f o r i t .
I have a s p e c i a l p l e a s u r e i n f i n d i n g m y s e l f t o d a y
on t h e p l a t f o r m
with Governor Guido Carli. A s everyonerecognizes,
he was i n t h e succession-oftheoutstandingheadsofthe
Bank o f I t a l y , L u i g i E i n a u d i
and
Donato Menichella, who b r a v e d t h e s t o r m t o p r o v i d e t h e i r c o u n t r y w i t h
sound money a n d t h e r e b y l a y t h e b a s i s f o r I t a l y ' s s p e c t a c u l a r
economic
development i n t h e 1950s and 1960s. I havealwaysappreciated
Guido Carli
also for his penetrating insight into the sociopolitical
problemsofour
times. It i s an axiom of c e n t r a l b a n k i n g t h a t
a c e n t r a l bankmustmaint a i n a c e r t a i n independencefrom t h e government;butunderGovernor
Carli
it was s a i d i n I t a l y t h a t t h e
governmentmust maintain a c e r t a i n i n d e pendencefrom t h e c e n t r a l bank.That
i s a g r e a t t r i b u t e for a c e n t r a l
bankgovernor!
Governor Carli has treated us today with
a provocative discourse
and it i s my assignment t o r e a c t t o i t . I do not want t o r e a c t s o much
by d i s a g r e e m e n t , e s p e c i a l l y as Governor Carli hasdisavowed some o f t h e
viewshe s e t s f o r t h , b u t r a t h e r
by d i s c u s s i n g o t h e r a s p e c t s
o f t h e questionsraised.
The f i r s t q u e s t i o n t h a t s t r i k e s me r e l a t e s t o t h e t i t l e o f h i s l e c t u r e , "Why Banks Are Unpopular.
I c o n f e s st h a t
I have notbeenaware
ofany s p e c i a l u n p o p u l a r i t y ofbanks i n t h e c o u n t r i e s w i t h
which I have
beenconcerned.
I have c e r t a i n l yn o ts e e ns i g n st h a t
American banks a r e
unpopular i n t h e U n i t e d S t a t e s o r
Swissbanks i n S w i t z e r l a n d .
But I accept Governor Carli 's observation that banks
are unpopular i n I t a l y , and
p e r h a p si n some o t h e r c o u n t r i e s .
I do notput much weight i n i t , however,
because I have t h e f e e l i n g t h a t n o t
much of what I believeaboutmonetary
s t a b i l i t y i s popular with the critics that
Governor Carli i s r e f e r r i n g t o .
- 14
-
But t h e r e a l p o i n t
i s t h i s : Whoever s a i d t h a t banksweresupposed
What we demand frombanks i s n o t p o p u l a r i t y b u t s a f e t y .
t o bepopular?
Because I l i v e somewhat i n t e r n a t i o n a l l y , I haveaccounts i n banks i n
I i n t e n d t o show t h e
F r a n c e ,i nt h eU n i t e dS t a t e s ,
and i n S w i t z e r l a n d .
l i s t of t h e s e banks t o Governor Carli. And i f he t e l l s me t h a t any of
them i s p o p u l a r w i t h h i s c i r c l e o f c r i t i c s , t h e f i r s t t h i n g
I am going
t o do i s t a k e my money o u t . But I am q u i t e s u r e I w i l l nothave t o do s o .
You a l l know that banking i s by n a t u r e a c o n s e r v a t i v e i n d u s t r y , which
it must bebecause it works w i t h o t h e r p e o p l e ' s
money; it o p e r a t e s on narit i s unable t o r i s k l a r g e l o s s e s .
Now,
we
have
row marginsofgainand
and t h e
been passing through a v e r y d i f f i c u l t p e r i o d o f h i g h i n f l a t i o n
repercussions of the oil crisis, in
which q u i t e a few bankshad somewhat
h i g h e rl o a nl o s s e st h a nu s u a l .
But t h i s was notbecausethey
hadbeen
t r y i n g t o b e p o p u l a r ; it was because circumstances arose that
were not
onlyunforeseenbutunforeseeable.
Of course,everyday'searningsof
i n t e r e s tc o u n tw i t h
banksbecauseeverydaytheyincurinterest
and
o p e r a t i n gc o s t s on t h e money theyhold.
S o , they want t o l e n d .
But t h e y
want t o l e n d s a f e l y .
There i s a book coming o u t l a t e r t h i s month by t h e
The Eurod i r e c t o r o f a consortium bank i n London, Steven Davis, entitled
Bank, which I recommend t o any of you i n t e r e s t e d i n t h i s s o r t o f t h i n g .
Mr. Davishastrainingineconomics,but
he w r i t e s h e r e f r o m t h e p r a c t i c a l
standpointof bankmanagers.
You w i l l s e e c l e a r l y t h e g r e a t e f f o r t s
banks
taketoinformthemselvesabouttheirborrowers,tosetproperguidelines
f o r t h e management of t h e i r a s s e t and l i a b i l i t y s t r u c t u r e , and t o make
t h e i ro p e r a t i o n sp r o f i t a b l e .
There i s not a word i n t h e book about
popularity.
I may r e l a t e a s t o r y t h a t i s r e l e v a n t t o t h i s p o i n t
whichconcerns
t h e Chairman oftheFederalReserveBoard,ArthurBurns.
It happened i n
1974, when monetary policy was v e r y t i g h t i n t h e U n i t e d S t a t e s i n
an effort to curb inflation--an effort
which t u r n e d o u t t o b e q u i t e s u c c e s s f u l .
It happened t h a t t h e chairmanand t h e p r e s i d e n t o f
a l a r g e bank came t o
s e e Chairman Burns. They s a i d , "AS you know, Mr. Burns,problemsofbank
liquidity are arising because of your very tight monetary policy,
and we
would l i k e y o u r a s s u r a n c e t h a t , i f o u r
bank runs i n t o l i q u i d i t y d i f f i culties,theFederalReserve
as t h e l e n d e r of l a s t r e s o r t w i l l giveus
as t h e t o p
f u l l s u p p o r t . " Mr. Burns s a i d t o them,"Gentlemen,yourduty
o f f i c e r s ofyourbank
i s to protect the interests of your stockholders
and t h e s o l v e n c y o f y o u r i n s t i t u t i o n . I f
you do t h a t , you needhave no
concernabouttheFederalReservecarryingout
i t s duty. But , i f you do
not protect the bank's solvency,
I w i l l behappy t o d i s c u s s any l i q u i d i t y
problemofyourbankwithyoursuccessors."
Now, t h a t i s t h e r i g h t a t t i tude for a centralbanker.
A t one p o i n t i n h i s l e c t u r e
Governor Carli mentions t h a t o f f i c i a l
surveillance of banks has never reached
beyond t h e b o u n d a r i e s o f n a t i o n a l
misi n t e r e s t s . I am s u r e t h a t he d i d n o t i n t e n d t h a t s t a t e m e n t t o b e
understood,but I want t o be s u r e t h a t it i s n o t . Bank s u r v e i l l a n c e i s
not aimed a t n a t i o n a l i n t e r e s t s b u t
at the interests of
anyone who has
puthistrustintheinstitution.
When t h e H e r s t a t t Bank or t h eF r a n k l i n
National went b r o k e , t h e l o s s e s
were n o t o n l y f e l t
by German o r American
n a t i o n a l s ; t h e r e were p l e n t y o f f o r e i g n n a t i o n a l s
who l o s t money as well.
And
we
expect the surveillance authorities to
do t h e i r b e s t t o p r o t e c t
them.This
i s a l l t h e more necessary when t h e l a r g e banks of many count r i e s have c o n s i d e r a b l e o p e r a t i o n s o u t s i d e t h e i r
own c o u n t r i e s .
- 15 -
I want t o commentnow
on two aspectsofmonetaryreform.
'You s e e
t h a t Governor Carli i s not happy about how the reform has turned out.
Well,neither a m I . But I t h i n k t h a t we a r e unhappy about somewhat d i f A s h es a y s ,t h ef i n a lo b j e c t i v e s
of t h er e f o r m were t o
f e r e n tt h i n g s .
restrict the use of the dollar
as a r e s e r v e , i n t e r v e n t i o n , and s e t t l e ment currency; to eliminate gold from the system; and
to substitute a
reserveinstrument,
SDRs, c r e a t e d by t h e a u t h o r i t i e s .
Of c o u r s e , it
was easy enough t o e l i m i n a t e g o l d by decree s o t h a t n e i t h e r t h e IMF nor
t h e U.S. Treasury would bebuyersof
last r e s o r t .
To r e s t r i c t t h e d o l l a r ,
however, i s q u i t ea n o t h e rt h i n g .
The d o l l a r
d i d n o t become t h e r e s e r v e and intervention currency of the system beit t o be s o o r because it was so arranged
cause the United States willed
i n t h e IMF A r t i c l e so f Agreement. Not a t a l l . R a t h e r ,t h ep o s i t i o no f
i t s enormous convenience t o
the dollar developed naturally because of
bothcentralbanks
and t h e p r i v a t e economy. Thisconveniencederived
from t h e f a c t t h a t t h e s h o r t - t e r m d o l l a r
market i s a f r e e andopen mark e t andfrom t h e huge s i z e of t h e d o l l a r f o r e i g n
exchange market, which
c a nr e a d i l ya b s o r bl a r g ec e n t r a l
bank t r a n s a c t i o n s . The whole i d e a t h a t
t h i s convenience could be nullified
by the reformers of the system merely
by w r i t i n g down t h e o b j e c t i v e o f r e s t r i c t i o n i n t h e
new M
I F A r t i c l e s shows
t h a tt h e i rc o n c e p t i o n
of t h es y s t e m was a f a n t a s y . A s Governor Carli
s a i d , t h e Common Market c o u n t r i e s a t t e m p t e d t o i n s t i t u t e a n i n t e r v e n t i o n
and settlement system in
which t h e u s e o f t h e d o l l a r was r e s t r i c t e d . The
a fewmonths
U n i t e d S t a t e s r a i s e d no o b j e c t i o n s , b u t t h e s y s t e m l a s t e d o n l y
u n t i l t h e d o l l a r was r e i n s t a t e d b e c a u s e it was convenient t o t h e Common
Market countries themselves.
I may mention t h a t I suggested t o t h e U n i t e d S t a t e s a t one p o i n t t h a t
it l i m i t t h e placementof d o l l a r s by some c e n t r a l banks i n t h e New York
market s o as t o f a c i l i t a t e t h e a d j u s t m e n t o f t h e d i s e q u i l i b r i u m i n i n t e r n a t i o n a l payments.This
would obviouslyhavebenefitedtheUnitedStates
because foreign holdings of
U.S. T r e a s u r y b i l l s and i n t e r e s t payments t o
abroadwouldhavebeenlower.
I was n e v e r t o l d why t h i s obviousdevice
was n o t r e s o r t e d t o ,
eventhough i t s use was sanctioned by t h e p r a c t i c e
I f e e l sure, however, t h a t it was notbeofothermonetaryauthorities.
cause o f narrow n a t i o n a l i n t e r e s t s ; most l i k e l y t h e temporary advantage
was waived i n t h e i n t e r e s t o f a v o i d i n g c o n t r o v e r s y a n d a v o i d i n g
a posture
o f p u t t i n g p r e s s u r e on o u r t r a d i n g p a r t n e r s .
Another aspect of the use of the dollar
as t h e r e s e r v e c u r r e n c y
is
Where e l s ec a nt h er e s e r v e s
go? Centralbanksareobviouslynot
interested in placing their foreign assets in
weak c u r r e n c i e s o r i n count r i e ss u b j e c tt op o l i t i c a ld i s t u r b a n c e .
And as f o r t h e s t r o n g c u r r e n c i e s ,
c e n t r a l bank holdings of
them a r e s e v e r e l y r e s t r i c t e d by t h e i r monetary
i s t h ec a s ef o r
example w i t ht h ed e u t s c h e
mark, t h e
a u t h o r i t i e s .T h i s
Netherlands guilder, and the Swiss franc--and for the very
good reason
t h a t t h e f o r e i g n exchangemarkets i n t h o s e c u r r e n c i e s are too narrow t o
handle the huge volume of c e n t r a l bank i n f l o w s t h a t would s u r e l y come
about i f t h e r e were no r e s t r i c t i o n s . All of you i n S w i t z e r l a n d know t h i s
problem very well; free central
bank a c c e s s t o t h e Ziirichmarket would
push t h e Swiss franc through the roof, to the great detriment of Swiss
i n d u s t r y . And c e n t r a l banks a r e j u s t as smart as p r i v a t ei n d i v i d u a l s ;
t h e y do not want t o pay a high penalty to keep funds in Swiss banks
when
by h o l d i n g t h e f u n d s i n d o l l a r s .
they can get a reasonable rate of interest
this:
Well, of course, there
was t h e o t h e r p o s s i b i l i t y , mentioned by Governor Carli, of SDRs c r e a t e d by t h e a u t h o r i t i e s .
The answer t o t h a t i s
- 16 -
q u i t es i m p l e :
it was t r i e d and it d i dn o t work. The s u r p l u sc o u n t r i e s
just did not rush forward to fill in their balance sheets with
SDRs t o
theextentthatthey
havedone w i t h d o l l a r s .
And
who
canblamethem
when what stands behind the
SDR i s j u s t n o t e q u a l t o t h e f i n a n c i a l
s t r e n g t h andgood f a i t h o f t h e U n i t e d S t a t e s ,
which stands behind the
dollar?
I
I believe that the
SDR, p r o p e r l y c o n s t i t u t e d , was a good idea and
couldhave become a u s e f u l monetary f a c i l i t y . But it was notproperly
c o n s t i t u t e d when it was trumpeted as a f i d u c i a r y r e s e r v e a s s e t which d i d
notneed a c o r r e s p o n d i n gr e s e r v el i a b i l i t y .
Of c o u r s e ,s o v e r e i g ns t a t e s
could do i t - - w i t h o u t g o i n g t o j a i l - - b u t
it w a s n o t t h e way t o g e t c o n f i dence i n t h e SDR.
Therewere,however,
two o t h e r c i r c u m s t a n c e s t h a t worked a g a i n s t
t h es o l i de s t a b l i s h m e n to ft h e
SDR. The f i r s t was t h a t t h e f a c i l i t y was
a c t i v a t e d i n 1970 when t h e r e was a m a j o r d i s e q u i l i b r i u m i n i n t e r n a t i o n a l
paymentsand
i nt h es t r u c t u r eo f
exchange r a t e s . It was obvious t h a t a
break was coming and I c a u t i o n e d t h e Group of Ten Deputies t o h o l d o f f
w i t h t h e SDR u n t i l t h e a d j u s t m e n t had been brought about because activat i o n under t h e e x i s t i n g i m b a l a n c e
would r i s k d i s c r e d i t i n g t h e
SDR. But
I suppose t h a t t o c o n v i n c e t h e market t h a t t h e a u t h o r i t i e s were i n c h a r g e
was made. The o n l y t r o u b l e was t h a t t h e auof t h e s i t u a t i o n , t h e d e a l
t h o r i t i e s were n o t i n c h a r g e o f t h e s i t u a t i o n ;
market forces took over,
and t h e SDR suffered in consequence.
The second condition that
worked a g a i n s t t h e SDR was t h e p o l i t i c a l
p r e s s u r e t o t u r n it i n t o a k i n d o f g i f t c e r t i f i c a t e .
That i s one of
those nicely printed pieces of paper
youmight g e t f o r y o u r b i r t h d a y
which allowsyou t o chooseanythingyou
want a t the department store
up
t o i t s d e c l a r e d amount o f ,s a y , 100 f r a n c s . O f course,thedepartment
store takes the precaution of collecting cash
money i n advance, while a
countrywhichreceives
an SDR f o r i t s exportscollectswhat?
A gift
c e r t i f i c a t e . There i s h e r e t h e o l d
dichotomybetween r e s e r v e s t o spend
and r e s e r v e s t o h o l d , a f a v o r i t e d i s t i n c t i o n which was always made by a
formerPresidentofthe
BIS, Dr. Holtrop. A g i f t c e r t i f i c a t e i s q u i t e
it j u s t happens t o have c e r t a i n
acceptable as a r e s e r v e t o s p e n d , b u t
shortcomings as a r e s e r v e t o h o l d .
A l l t h i s l e a d s us t o t h e d i f f i c u l t problems t h a t a r o s e from t h e
large increase in the price
of o i l t h a t was imposed a t t h e s t a r t of 1974.
I remember the meetings of Working P a r t y No. 3 o f t h e OECD andelsewhere
that discussed those problems, and
two important conclusions were
drawn.
The f i r s t was t h a t , a p a r t from t r y i n g t o s a v e on t h e u s e o f e n e r g y
and
of getting rid of non-oil deficits, countries should not attempt an
abrupt adjustment of their oil-induced deficits in external payments.
They should avoid controls
on non-oil imports and any adjustment
by competitive devaluation, because such policies
would l e a d t o a downward
spiral of world
economic a c t i v i t y and of employment.
It followedfrom t h i s t h a t t h e o i l d e f i c i t s
would have t o be financed,
p e r h a p s p a r t l y from reserves, but mostly
byborrowing.
And s o t h e second
question was: Who would do t h el e n d i n g ?W e l l ,t h em a j o r i t y
view was t h a t
for the largest share
it s h o u l d b e t h e p r i v a t e f i n a n c i a l s y s t e m b e c a u s e ,
you s e e , t h a t was where t h e OPEC c o u n t r i e s were p l a c i n g t h e b u l k o f t h e i r
surplusfunds.
And t h a t is t h e main e x p l a n a t i o nf o r a l l t h e b i l l i o n s of
t h i s and b i l l i o n s of t h a t whichGovernor Carli c i t e d f o r u s .
He s a y s t h a t
the mistrust of the
commercialbanks d e r i v e s from t h e f e e l i n g t h a t t h e y
have appropriated too large
a share of monetary sovereignty, and.1 agree
with him i n n o t s u b s c r i b i n g t o t h a t i n t e r p r e t a t i o n .
The f a c t i s t h a t
is an attribute
t h e commercialbankshave
no monetary sovereignty, which
of t h e c e n t r a l bankand t h e governmentwhich stands behind i t .
Youmay
remember that the Chancellor of the Exchequer, Denis Healey,
proposedan IMF o i l f a c i l i t y o f SDR 30 b i l l i o n , b u t t h e i d e a
was s t i l l born because the OPEC c o u n t r i e s d i d n o t want t o p u t u p a n y t h i n g l i k e t h a t
amount. Even w i t h t h e more modest o i l f a c i l i t i e s n e g o t i a t e d by
Mr. Witteveen,about a q u a r t e r o f t h e moneycame from non-OPEC c o u n t r i e s :
Canada,Belgium, the Federal Republic of
Germany, the Netherlands, Switzera lotof fil a n d , Norway, and A u s t r i a . All i n a l l , t h e r eh a sb e e nq u i t e
nancingfrom o f f i c i a l s o u r c e s , o f
which t h e r e c e n t f a c i l i t i e s t o I t a l y
and G r e a t B r i t a i n are o n l y t h e l a t e s t examples.
As to the private financing,
Governor Carli seems s u r p r i s e d by t h e
l a r g es h a r et h a t
came through U.S. banksand t h e i r f o r e i g n b r a n c h e s .
But
where e l s e c o u l d t h e f u n d s
come from?Foreignlending
by t h e Swissmarket
hasbeen enormous i n r e l a t i o n t o t h e s i z e of the country, but Switzerland
i s a small country. German andDutchbankshave
a l s o been a c t i v e f o r e i g n
l e n d e r s ; but again they cannot measure
up t o t h e s i z e o f t h e U.S. banks l
resources--which have been fed not only
byAmerican money b u t by money
fromaround t h e world. I do n o t h e s i t a t e t o c r i t i c i z e t h e U n i t e d S t a t e s
i t ; i n t h i s m a t t e r , however, I must s a y t h a t t h e
when t h e f a c t s w a r r a n t
action of the
U.S. banks, taken a t t h e i r own r i s k , h a s g i v e n s u p p o r t t o
t h e i n t e r n a t i o n a l economy through a v e r y d i f f i c u l t p e r i o d .
In the latter part of his lecture,
Governor Carli has touched on
some of t h e problemsofItaly.
It i s q u i t e & l a mode nowadays t o d i v i d e
countriesintodevelopedcountries
and developing countries, and I f u l l y
r e c o g n i z e t h e u t i l i t y of t h a t d i v i s i o n f o r c e r t a i n v i t a l
problems--such
as economic a s s i s t a n c e and raw m a t e r i a lp r i c e s .F o r
what concernsus
h e r e , however, it i s ofequalimportance
todividecountriesintothose
who s t r u g g l e f o r monetary s t a b i l i t y and those whose e f f o r t s are l e s s
conspicuous i n t h a t r e s p e c t .
You f i n d many developingcountriesinthe
f i r s t group, having strong currencies,
as you f i n d some developedcount r i e s i n t h e second group, without sufficient cohesion
and d i s c i p l i n e t o
make a h i g h g r a d e i n t h e t e s t
ofmonetary s t a b i l i t y .
And, u n f o r t u n a t e l y , i n t h e l a s t few years we f i n d I t a l y i n t h a t
group. Our b e l o v e dI t a l y !
Most everyone i n t h i s a u d i e n c e , I am s u r e ,
has felt the great historical contribution
of I t a l y t o o u r c i v i l i z a t i o n
and thehappiness of h o l i d a y si n i t s heart-warmingatmosphere.
Fettucini
Alfred0andanespresso
on t h e Via Veneto! Where i s t h i s g r e a t c o u n t r y
Governor Carli when he c i t e s Governor
today? I completelyagreewith
Wallich as t o t h e need f o r e n t e r p r i s e s t o show an adequate profit margin
i f t h e y are t o p r o g r e s s and be a b l e t o r a i s e t h e c a p i t a l t o p r o v i d e j o b s .
And I agree with him also about the evil of obliging the banking system
t o f i n a n c e anyand a l l d e f i c i t s o f t h e p u b l i c s e c t o r . E x p e r i e n c e
has
c e r t a i n l y d e m o n s t r a t e d i n many c o u n t r i e s t h a t when t h e c e n t r a l bank i s
obligedtocoverthegovernment'sdeficit
it l o s e s i t s power t o be a
check on i n f l a t i o n a r y f i n a n c i n g .
I can understand that
Governor Carli was r e l u c t a n t t o e l a b o r a t e a l l
o fI t a l y ' sp r e s e n t
problems.There
i s a l a c k of d i s c i p l i n e t h a t goes
much beyondmonetary d i s c i p l i n e . P o l i t i c a l u n c e r t a i n t i e s , d i s r u p t i v e
-
la
-
laborrelations,administrativeinefficiency,
huge d e f i c i t s i n t h e p u b l i c
s e c t o r and the balance of payments, with the
Bank o f I t a l y s t r u g g l i n g
almost a l o n e t o g e t
a g r i p on t h e s i t u a t i o n .
But it t a k e s more t h a n t h e
Bank o f I t a l y ' s monetarypowers tosolvethecountry'sproblems.Otherwise, Governor Carli would havesolved them--or Governor Baffi wouldSolve
them today
.
Governor Carli d i p l o m a t i c a l l y r e f r a i n e d fromdrawing f o r u s t h e f u l l
l e s s o n so fr e c e n tI t a l i a ne x p e r i e n c e .
But I may c l o s e by t e l l i n g you i n
simple wordswhat t h a t l e s s o n i s : Do not do i t !
MR. WALLENBERG:
Thank you, Dr. G i l b e r t , f o r y o u r c o n t r i b u t i o n t o t h i s
v e r yi n t e r e s t i n gs u b j e c t .
You c e r t a i n l y h a v et a k e nt h eo p p o r t u n i t yt o
widen it and make it s t i l l more i n t e r e s t i n g . We a r e g r a t e f u l f o r t h a t .
- 19 -
Questions and Answers
Following the formal presentations
and a s h o r t
i n t e r m i s s i o n , Dr. Carli answered w r i t t e n q u e s t i o n s
from t h e a u d i e n c e .
GUIDO CARLI: I haveseveralquestions,eachofwhichrequires
a
speech, I h a v en o tt h et i m et op r e p a r e
a speech f o r eachquestion, and
I d o . n o t b e l i e v e t h a t you a r e p r e p a r e d t o l i s t e n t o any more speeches.
I have organized the questions according to the
matters t h e y refer t o .
I w i l l begin byanswering t h e f i r s t group of questions concerning
the
function which has been performed by the private banking system.
F i r s t , my view i s t h a t , i n t h e absence of concerted action
by t h e
authoritiesinrecenttimes,thebankingsystemhastakenoveranarea
of the financial system of both the public
and t h e p r i v a t e s e c t o r s w h i c h ,
i n t h e p a s t , was occupiedbylong-termmarketsand
official institutions.
When I described t h e evolution I d i d n o t i n t e n d t o c r i t i c i z e t h e b e h a v i o r
of t h e p r i v a t e b a n k s .
I had no i n t e n t i o n of c r i t i c i z i n g anybody; I was
m e r e l yd e s c r i b i n gf a c t s .I f
I had i n t e n d e d t o c r i t i c i z e anybody, it was
more the public sector than the private sector--in other words, the sect o r t o which I belonged f o r many y e a r s . When I mentioned t h e p o s i t i o n
occupied by the dollar in the international monetary system,
I did not
imply t h a t it was e i t h e r good or bad. You
may
remember, M i l t o n , t h a t one
evening many years ago, possibly
when Dr. Holtrop was our Chairman, we
were d i s c u s s i n g t h e problemof what kind ofmonetarysystem
we had. I
answered t h a t I , myself, a m on a d o l l a r s t a n d a r d . T h e r e f o r e , i n t h i s
r e s p e c t , I havenotbeen
much s u r p r i s e d bywhat hashappened.
I do bel i e v e t h a t at t h a t t i m e many of our colleagues thought t h a t it was s t i l l
p o s s i b l e t o move from t h e d o l l a r s t a n d a r d t o
some o t h e rs t a n d a r d .
I did
n o t ; I t h o u g h tt h a tt h ed o l l a rs t a n d a r d
was a n e c e s s i t y . If it was good
or bad, I do not know, but I t h i n k t h a t what happened was a n a c c e l e r a t i o n
ofthetransitionofthemonetarysystemtoward
a dollarstandard.
This
happened a f t e r a year during which,
t o d i f f e r i n g e x t e n t s , most of us
preached of the necessity of liberating the international monetary system
from the domination of reserve currencies.
Second, I b e l i e v e t h a t t h e i n t e r v e n t i o n i n t h e b a n k i n g s y s t e m
was a
n e c e s s i t y and I believe--answering a long question by Dr. Emminger--that
it i s the function of the banking system to finance the expansion of int e r n a t i o n a l trade. It seems t o me t h a t what has happened i n r e c e n t y e a r s
i s that the banking system has not only financed international trade but
hasalsofinancedthetransferofrealresources
from c e r t a i n c o u n t r i e s
- 20 -
t oo t h e rc o u n t r i e s .
And, it seems t o me, t h a tp e r h a p st h a t
i s t h e func-,
t i o n of c a p i t a l m a r k e t s . I n
t h i s r e s p e c t I b e l i e v e t h a t t h e banking
system has extended i t s e l f t o an a r e a which i s n o t t h e p r o p e r domain
of commercial banks.
What I i n t e n d e d t o s a y i s t h a t t h e evolution t h a t has t a k e n p l a c e
r e c e n t l y has made t h e i n t e r n a t i o n a l monetarysystem more v u l n e r a b l e .
has grown, as a consequenceofthe
means by
The q u a n t i t y o f l i q u i d f u n d s
which structuralimbalanceshavebeenfinanced:in
t h i s r e s p e c t it seems
t h a t the system has become more vulnerable.
Here t h e problem arises of t h e consequencesof movements offunds
i n a system i n which t h e q u a n t i t y o f l i q u i d f u n d s
has i n c r e a s e d as a
c o u n t e r p a r to ft h ef i n a n c i n go ft h et r a n s f e ro fr e a lr e s o u r c e s .
To what
extent have t h e consequences of movements of funds been absorbed
by f l u c tuations of rates of exchange, and
t o what e x t e n t do they have t o be absorbed? To what e x t e n t do t h e y have t o befinanced by t h e i n t e r v e n t i o n
whose
of t h e a u t h o r i t i e s ? Here I believe t h a t t h e p o s i t i o n s o f c o u n t r i e s
exchange r a t e s a r e d i f f e r e n t
exports are l e s s s e n s i t i v e t o v a r i a t i o n s i n
from t h o s e of c o u n t r i e s whose e x p o r t sa r e more s e n s i t i v e . It seems t o me
t h a t the experience of
t h e j o i n t f l o a t shows t h a t , not only because of
divergencesin the r a t e o f i n f l a t i o n i n v a r i o u s c o u n t r i e s , b u t a l s o
because some c o u n t r i e s p a r t i c i p a t i n g i n t h a t experimenthaveexportswhich
are more s e n s i t i v e and o t h e r s have exports which a r e l e s s s e n s i t i v e t o
variations in the rates
of foreign exchange, the system could not
last.
The experience of t h e F r e n c h f r a n c i n
the jointfloat--goingout,going
t h a t i n Europe
i n a g a i n , and then going out again--1 think demonstrates
there are c o u n t r i e s which a r e i n d i f f e r e n t p o s i t i o n s ,
and I b e l i e v e t h a t
Dr. M i n g e r ' s q u e s t i o n i s influenced by t h e s t r e n g t h o f t h e
German economy and by t h e s t r e n g t h of i t s e x p o r t s .
Then there are questions concerning the influence
of the extension
of t h e c r e d i t t o t h e public sector at the expense of c r e d i t t o t h e productivesectorextended by commercial banks.
view,which i s c e r t a i n l y
i s t h a t , f i r s t , i f t h e d e f i c i t of
influenced by t h e I t a l i a n e x p e r i e n c e ,
thepublicsectorgoes
beyond c e r t a i n limits, t h e c e n t r a l bank i s con-
m
f r o n t e d by t h e d r a m a t i c dilemma ofwhether t o p e r m i t t h e f i n a n c i n g o f t h e
d e f i c i t i n t h e market--and t h e r e b y l e t i n t e r e s t rates soar without limits
and crowd out t h e amount of c r e d i t a v a i l a b l e t o t h e p r i v a t e s e c t o r - - o r t o
f i n a n c ep o r t i o n so f
t h e d e f i c i t byexpanding t h e monetarybase.
But when
t h e c e n t r a l bank allows the financing of the deficit
byexpanding t h e
monetary base, it Loses c o n t r o l o f t h e c r e a t i o n o f i t ; and t h e r e f o r e , i n
t h e end, it i s not t h e c e n t r a l bank t h a t l o s e s c o n t r o l - - i t
i s the s t a t e ,
it i s t h e government, it i s t h e c o r n u n i t y t h a t l o s e s i t s s o v e r e i g n t y , because the establishment of t h e q u a n t i t y o f money which d u r i n g c e n t u r i e s
was anexpressionofsovereignty
no longerremains s o . And i f t h e amount
of the deficit
of t h e public sector goes out of control,
what it means i s
t h a t t h e process of creation of
money g e t s o u t o f c o n t r o l .
And u l t i m a t e l y ,
it i s t h e community t h a t l o s e s i t s sovereignty.
Second, i n t h e c o u r s e o f f i n a n c i n g
the deficitofthepublicsector,
the central bank, in order
t o p r o t e c t t h e bond m a r k e t , s t e p s i n w i t h meas u r e s aimed a t extending the obligation of
commercial banks t o take over
c o B f f i c i e n t de t r e s o r i e - - t o t h e
i n v a r i o u s forms--purchasingofbonds,
e x t e n t t h a t t h e c e n t r a l bank s t e p s i n o b l i g i n g commercialbanks t o f i n a n c e
larger portions of
t h e p u b l i c d e f i c i t a t t h e expenseof t h e p r i v a t e s e c t o r ,
t h e c e n t r a l bank l o s e s t h e p o s s i b i l i t y o f c o n t r o l l i n g
t h e monetaryflows
throughthesystem.
But a t t h e same time--and t h i s j u s t i f i e s t h e t i t l e
of my s p e e c h - - t h i sl e a d st o
a c o n c e n t r a t i o no fa t t a c k s
on banks.This
i s t h e I t a l i a n e x p e r i e n c e :t h a t
commercialbankshavebeen
obligedrec e n t l y , even l a s t week, by d e c i s i o n s t a k e n by t h e a u t h o r i t i e s , t o conc e n t r a t e h i g h e r and h i g h e r p o r t i o n s o f t h e i r a s s e t s i n t h e f i n a n c i n g o f
theTreasury.
The consequencehasbeenthatpublicopinionhasturned
againstthebanks,andthere
i s the danger that such an attack might
have t h ee f f e c to fa g g r a v a t i n gt h ev i c i o u sc i r c l e :h i g h e rd e f i c i ti n
thepublicsector,higherfinancing
byexpansionofmonetarybase
(in
case such expansion has been restricted), greater intervention
by t h e
, and g r e a t e r
bond market ( i n c a s e t h e bond marketdoesnotrespond)
i n t e r v e n t i o n by thebanks.
A t therootofthis
problem--and I t h i n k it
was beyond t h e limits of my speech--I have not analyzed the sources of
t h ep u b l i cd e f i c i ti nt h ev a r i o u sc o u n t r i e s .
But t o t h e e x t e n t t h a t t h e
deficit with respect to the gross national product
growsmoreand
more,
and t o t h e e x t e n t t h a t
it i s generated by current account expenditure,
t h i s simply means t h a t t h e r e i s a destructionofsavings.There
is a
g r e a t e r and greater portion of savings which, instead of being transi s transformedintoexpendiformed i n t o v a r i o u s formsofinvestment,
t u r e - - c u r r e n te x p e n d i t u r e .T h e r e f o r e ,t h e r e
i s no t e c h n i c a ld e v i c et h a t
c a ns o l v et h i s
problem. The interventionofthemonetaryauthorities
might o f f e r o v e r t i m e v a r i o u s s o l u t i o n s t o
making t h e impact l e s s heavy,
butintheend,ifthepublicdeficit
on current account absorbs greater
and g r e a t e r q u a n t i t i e s of savings, this simply
means t h a t t h e c o u n t r y
where t h i s happens i s condemned t o decadence. And I t h i n k t h a t t h e f i nancialintermediaries,whateverthedevicesthey
may use, cannot sustain
such a process. A s far as we areconcerned, as far as I t a l y i s concerned,
t h i s i s t h e problem.
Anotherproblem i s t h a t t h e d e s t r u c t i o n of savings does not permit
investment. For a while it i s p o s s i b l et of i n a n c ei n v e s t m e n t
byimportWhat it means i s t h a t a c o u n t r y i n whichsavings
ingsavings fromabroad.
are being destroyed replaces savings
by importing savings from abroad.
It means, t o quote myself, that the country concerned, instead of
imposi n g t a x e s on i t s own c i t i z e n s , imposes t a x e s on t h e c i t i z e n s o f t h e n e i g h boringcountries.
Next,there i s a question on t h e same subject. The question is.:I f
governors of central bankswere members of governments, what wouZd happen?
I think there are historical
examplesof
a governorbeing
a t t h e same time
a member of t h e government,but I do n o t b e l i e v e t h a t , b a s e d
on our exp e r i e n c e s , I would recommend i t . There a r e a t p r e s e n t c o u n t r i e s i n
which
governors are a t t h e same time members ofthegovernment,butthese
are
c o u n t r i e s i n which t h e economy i s centrally planned and t h e r e f o r e t h e c r e a t i o n of money i s k e p t w i t h i n t h e limits o f t h e p l a n e s t a b l i s h e d
by t h e
p o l i t i c a la u t h o r i t i e s .
My personalconclusion i s t h a t i n a democratic,
p l u r a l i s t i c system, the solution should not be
on t h e s i d e o f b r i n g i . n g
governors into government but on keepinggovernors as independent as poss i b l e from governments
.
FinaZly, there is a questionconcerningthe
position of deveZoping
countries and the various p o s s i b i l i t i e s o f solving their financia2 probZsm8. But hereagain I b e l i e v e t h a t it i s not a q u e s t i o no ff i n a n c i a l
devices--it i s not a questionof one or t h e o t h e r d e v i c e f o r c o n s o l i d a t i n g
d e b t s , It i s t h e problemof t h ef l o wo fr e a lr e s o u r c e sa n dt h ee x t e n tt o
which it canbeorganized.
And a g a i n , I do b e l i e v e t h a t t h e v a r i o u s
financial devices which may beexpedient would notsolvetheproblem.
It
-
22
-
i s t h e problem o f r e a l r e s o u r c e s ,
and i t has t o berecognized as such.
at the
Because I belong t o a c o u n t r y t h a t i s developedanddeveloping
same t i m e , I am, probably more t h a n o t h e r s , open t o u n d e r s t a n d i n g t h e
problemsofdevelopingcountries.
And I t h i n kt h a tp e r h a p sb e c a u s ei n
i s being paid
the various international institutions too little attention
t o t h i s problem, the world today
i s more divided than it was b e f o r e , and
i s threatened with being even more divided between a group of countries
having prosperity within the country, having recovery
whichgoes more
t h a n s a t i s f a c t o r i l y , and on t h e o t h e r s i d e , c o u n t r i e s
whichhave no prosp e r i t y , no recovery,and which a r e o b l i g e d t o t a k e a c t i o n s i n t h e
form of
import r e s t r i c t i o n s , exchange c o n t r o l s , and i n t h e endhave t o a c c e p t a
r a t e ofgrowthwhich
may not be compatible with the maintenance of social
and p o l i t i c a l s t a b i l i t y .
But a g a i n , I b e l i e v e t h a t i s a problemwhich i s
o u t s i d et h es p h e r eo fc e n t r a lb a n k s .
The greatproblems o f todaywithin
our countries and i n t h e i r m u t u a l r e l a t i o n s more t h a n e v e r a r e i n t h e
purviewofthose
who b e a r p o l i t i c a l r e s p o n s i b i l i t i e s .
Thank you.
- 23 -
Concluding Remarks
MR. WALLENBERG: Are t h e r e any more q u e s t i o n s ? If n o t ,t h e n I
t h i n k t h a t we have come t o t h e end of the meeting.
As you know, t h e
Foundation i s going t o p u b l i s h t h e a d d r e s s e s which we have heard today
Will thoseof you who a r e n o t on t h e
inEnglish,French,andSpanish.
Foundation's mailing l i s t please give your names and a d d r e s s e s t o t h e
u s h e r s . And
may
I t h e n end by s a y i n g t h a t we havehad a most i n t e r e s t ingafternoon.
We havehad soDe thoughtfulsuggestions and I must say
I would
thatthishas
been a very good meeting.Beforeterminating,
l i k e t o e x t e n d our t h a n k s a g a i n t o our lwsts and t o o u r speakers, and
t o all of you who have come here. Thank you very much.
-
24
-
Biographies
Guido CarZi has, f o r most of h i s p r o f e s s i o n a l l i f e , beeninvolved
i n i n t e r n a t i o n a l monetary a f f a i r s .
A s a member of the U f f i c i o I t a l i a n o d e i Cambi, o f whichhe l a t e r
became Chairman,he was a l s o a member o f t h e f i r s t Board o f D i r e c t o r s
of t h e I n t e r n a t i o n a l Monetary Fund i n 1947.
He s e r v e d t h e I t a l i a n Government i n 1957-58 as ForeignTrade Mini s t e r , and i n 1959 became General Manager a n d , o n e y e a r l a t e r ,
Governor
o f t h e Bank of I t a l y , a p o s t h e h e l d u n t i l
his r e t i r e m e n t l a s t y e a r . He
has a l s o been Chairman o f t h e I t a l i a n P u b l i c
Works CreditConsortium and
DeputyChairman o f t h e I s t i t u t o
of t h e P u b l i c U t i l i t i e s C r e d i t I n s t i t u t e ,
M o b i l i a r e I t a l i a n o , and member of both the
Board of Directors of t h e Consiglio Nazionale delle Ricerche
and t h e Managing Committee o f t h e Assoc i a t i o n for t h e Development of I n d u s t r i e s i n S o u t h e r n I t a l y .
D r . Carli i s w e l l known i n i n t e r n a t i o n a l f i n a n c i a l c i r c l e s , h a v i n g
been a member and l a t e r Chairman of t h e Managing Committee o f t h e EuropeanPaymentsUnion,
member of t h e Managing Committee and l a t e r o f t h e
Board o f D i r e c t o r s of t h e Eank f o r I n t e r n a t i o n a l S e t t l e m e n t s , member of
the Monetary Committee of t h e European Economic Community, member o f t h e
Committee of Governorsof t h e C e n t r a l Banks o f t h e Member S t a t e s o f t h e
EEC, andGovernor o f t h e I n t e r n a t i o n a l Bank for Reconstruction and Development, the International
MonetaryFund,and
t h e Asian Development
Bank.
He hasspokenand
w r i t t e n w i d e l y on i n t e r n a t i o n a l monetary matters.
Following h i s r e t i r e m e n t i n
1975, D r . Carli became P r e s i d e n t of Irnpresit
I n t e r n a t i o n a l and i s a l s o S p e c i a l C o n s u l t a n t f o r I n t e r n a t i o n a l F i n a n c e
f o r t h e F i r s t Boston Corporation.
Dr. Carli was born i n B r e s c i a i n 1914 and obtained h i s d o c t o r a t e i n
law from t h e U n i v e r s i t y o f
Padua. He now l i v e s i n Rome.
-
25
-
Milton Gilbert was born i n P h i l a d e l p h i a i n 1909 and received his
d o c t o r a t e a t theUniversityofPennsylvania.
His d o c t o r a l t h e s i s was
e n t i t l e d "Currency Depreciation andMonetary P o l i c y " a n d d e a l t w i t h t h e
breakdown ofexchange p a r i t i e s i n t h e 1930s.
His f i r s t major position was i n t h e U.S. Departmentof Commerce as
E d i t o r of t h e S m e y of Current Business. He t h e n became Chief of the
National Income Division and earned an i n t e r n a t i o n a l r e p u t a t i o n by h i s
work e s t a b l i s h i n g t h e N a t i o n a l Income andProductAccountsSystem
of
the United States.
I n 1,950he became a Director of the Organization
f o r European Economic Cooperation t o assist i n d e v e l o p i n g n a t i o n a l a c c o u n t s d a t a i n
Europe. Laterhealso
became Economic Adviser of t h a t o r g a n i z a t i o n .
Besides being responsible
f o r t h e Annual Reports of the
OEEC, heproduced t h e f i r s t s c i e n t i f i c s t u d y
o f " I n t e r n a t i o n a l Comparisons of Nat i o n a l P r o d u c t s and the Purchasing Power of Currencies" and
was t h e
p r i n c i p a l a u t h o r of an i n f l u e n t i a l r e p o r t on t h e "Problemof Rising
P r i c e s . "T h i sr e p o r td e a l tw i t ht h ew a g e - p r i c es p i r a l
whichhas become
so i m p o r t a n t i n r e c e n t y e a r s .
I n 1960 D r . G i l b e r t came t o t h e Bank f o r I n t e r n a t i o n a l S e t t l e m e n t s
as Economic Adviser,beingthesuccessor
of PerJacobsson.
He was i n
a
charge of producing the
Annual Reports of the
Bank, whichhavehad
r e p u t a t i o nf o rc o g e n t
economicand p o l i c y a n a l y s i s .
He a s s i s t e d i n t h e
work of the Group of Ten on t h e problems of the international monetary
systemandproduced
two majoressays on t h i s s u b j e c t :
"The Gold-Dollar
System:Conditions
of EquilibriumandthePrice
of Gold" and "The Disc i p l i n e of the Balance of
Paymentsand t h e Design of the International
of the gold price to the
Monetary System," which analyzed the relation
functioning of the system.
He r e t i r e d from t h e BIS at t h e end of
- 26
-
1975.
The Per Jacobsson Foundation
FOUNDING
SPONSORS
HonoraryChairmen
Eugene R. Black(United States)
Marcus Wallenberg (Sueden)
Chairman
W. Randolph Burgess(United States)
Hermann J.Abs (Germany, Fed. Rep. )
Roger Auboin (France)
Wilfrid Baumgartner (France)
S. Clark Beise (United States)
B.M. Birla ( I n d i a )
Rudoli" Brinckmann (Germany, Fed. Rep.)
Lord Cobbold, P.C.(United Kingdom)
Miguel Cuaderno (Philippines)
R. v. Fieandt (Finland)
Maurice Fr&e
(Belgium)
E. . CFus sell
(New Zealand)
Aly Gritly ( E g y p t )
Eugenio Gudin(Brazi 2)
Gottfried Haberler (United States)
Viscount Harcourt
, K.C .M.G.
,
O.B.E. (United Kingdom)
Gabriel Hauge(United States)
Carl Otto Henriques(Denmark)
M.W. Holtrop (Netherlands)
Shigeo Horie (Japan)
Clarence E. Hunter (United States)
H.V.R. Iengar ( I n d i a )
-
27 -
Kaoru Inouye (Japan)
Albert E. Janssen (Belgium)
Raffaele Mattioli ( I t a l y )
J .J. McElligott (Ireland)
Johan Melander (Nomay)
Donato Menichella( I t a l y )
Rnmanuel Monick (France)
Jean Monnet (France)
Walter Muller(Chil e )
Juan Pardo Heeren(Peru)
Federico Pinedo (Argentina)
Abdul Qadir (Pakistan)
Sven Raab (Sweden)
David Rockefeller(United States)
Lord Salter, P.C.,
G.B.E., K.C.B.
(United Kingdom)
Pierre-Paul Schweitzer(France)
Samuel Schweizer (Switzerland)
Allan Sproul (United States)
Wilhelm Teufenstein ( A u s t r i a )
Graham Towers (Canada)
Joseph H. Willits(United States)
BOARD
OF
DIRECTORS
W. Randolph Burgess,
Chairman, Washington
Adolfo C. Diz
, Buenos Aires
Wilfried Guth,Frankfurt
Ren6 Larre,Basle
William McC. Martin,
Washington
Pierre-Paul Schweitzer,Paris
Frank A. Southard, Jr., Washington
Gengo Suzuki,London
Marcus Wallenberg,Stockholm
H. Johannes Witteveen
, Washington
OFFICERS
Frank A. Southard, Jr. , President
Albert S. Gerstein, Vice-president and Legal Cowzsel
Gordon Williams,Vice-President
Joseph W. Lang,J r . , Secretary
Graham D. Perrett , Treasurer
Address: c/o International Monetary Fund, Washington, D.C.
20431
- 28 -
Publications
(Available in English, French, and Spanish unless otherwise indicated)
1964 Economic Growth and Monetary StabiZity--Lectures by Maurice Fr&e
and. Rodrigo G6mez (out of print)
of
1965 The Balance Between Monetary PoZicy and Other Instmunents
Economic PoZicyin a Modern Society--Lectures by C.D. Deshmukh
and RobertV. Roosa (out of print
)
1966 The RoZe of the Central Banker Toduy--Lecture by Louis Rasminsky;
Commentaries by Donato Menichella, Stefan0 Siglienti, Marcus
Wallenberg, and Franz Aschinger (out
of print)
1967 Economic DeveZopment--The Banking Aspects--Lecture by David
Rockefeller; Commentaries by Felipe Herrera and Shigeo Horie
(English version out of print)
1968 Centra2 Banking and Economic Integration--Lecture by M.W. Holtrop;
Commentary by Lord Cromer (English and French versions out of print)
1969 The Roleof Monetary GoZd over the Next Ten Years--Study by
Alexandre Lamfalussy; Commentaries by Wilfrid Baumgartner,
Guido Carli, andL.K. Jha
1970 Toward a WorZd Central Bank?--Paper by William McChesney Martin;
Commentaries by Karl Blessing, Alfred0 Machado GBmez, and
Harry G. Johnson
1971 Intemationaz Capital Movements--Past, Present, Future--Paper by
Sir Eric Roll, K.C.M.G., C.B.; Commentaries by Henry H. Fowler
and Wilfried Guth
1972 The MonetaryCrisis of Z97Z--The Lessonsto Be Learned--Paper by
Henry C. Wallich;
Commentaries
by
C. J. Morse and I.G. Pate1
1973 InfZation and the InternutionaZ Monetary System--Paper by Otmar
Emminger; Commentaries by Adolfo Diz and JQnos Fekete
1974 Steps toIntemationaZ Monetary Order--Papers by Conrad J. Oort
and Puey Ungphakorn; Commentaries by Saburo Okita and William
McChesney Martin
1975 Emerging Arrangementsin InternationaZ Payments--PubZic and
Private--Paper by Alfred Hayes; Commentaries by Khodadad
Farmanfarmaian, Carlos Massad, and Claudio Segrk
- 29 -