1976

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, 1976, at the Uni-

June

versity 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 the Bank of Italy. A

of

Dr. by

commentary on the subject and on his paper was offered Milton

Gilbert, who had recently retired as Economic Adviser of the Bank for

International Settlements.



This publication covers the proceedings of this meeting. It in-

answers

cludes the text of the statements by the speakers, to questions

of the speakers.

asked by members of the audience, and brief biographies,

These proceedings are published the Foundation in English, French,

by

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 . 1





Opening Remarks

Marcus Wallenberg . 2





Why Banks Are Unpopular

Guido CarZ

i . 3





Commentary

Gilbert. Milton . . 14





Questions and Answers

Guido CarZi . . 20





Concluding Remarks

a

Marcus W Z Zenberg . . 24





Biographies . . 25





Founding Sponsors, Board of Directors, and Officers

of

tion the . 27





Publications - 29









- 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

i nt h eB a s l eU n i v e r s i t y . It i s a p r i v i l e g e f o r m as thepresentChair-

e

man of the Basle Government t o make t h e s e welcomingremarks. A t theout-

set of this meeting I 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

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 -

s o n a l i t i e s who are assembledheretoday tohearthisyear'slecture. I

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 m Government, the speaker

y

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 . "Mr. 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.



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

e

sometimes s a r c a s t i c , humor. H 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

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 as a

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 and gentlemen:RandolphBurgess, who i s t h e Chairman o ft h e

PerJacobssonFoundation, was supposed t o be heretoday. H had

e been

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 him n o t t o

t r a v e l a t t h i s time. I have known Randolph Burgess 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 s t i c s - - a s t r o n g man with strong convictions--and I b e l i e v e t h a t oneof

the reasons that he has been a man of such conviction was t h a t he s t a r t e d

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 Cor-

p 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 y

m compa-

t r i o t , Dr. PerJacobsson. Thank you very much.



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



e

W are going through a p e r i o d i n which t h e banking community has in-

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 is certainly the case

i n myown country.Antipathy toward bankers has old r o o t s : it i s s a i d

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 doubt and suspicionmust, I f e e l , l i e

i n t h e wideninginvolvementof the financial intermediaries both in inter-

n a t i o n a ls e t t l e m e n t s and i n domestic payments 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 commercialbankshaveap-

p 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 by t h e

a u t h o r i t i e s ; and



. t o e s t a b l i s h a new code ofconduct

and f l e x i b l e r a t e s e x i s t s i d e

f o r a system i n which f i x e d

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 anin-

t 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 monetary system reaped Without

i t s reward. any fear

of paradox it may b e s a i d t h a t t h e r e s u l t was more s p e c t a c u l a r t h a n ex-

p e c t e d :i n s t e a do f a gradualdisplacement, what happened was tantamount

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 of gold held in official

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 ex-

posed 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 theindo-

l 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 be-

l 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

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 , I t o om a i n t a i nt h a tt h 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 .



O March 5 , 1974, I w r o t e i n t h e Europeanpagesof

n 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

aspectsofthe growthof theEuro-dollarmarket. If it were t o t a k e t h e

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

centralbanks,could 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

t r a d e . 'I



I do n o t f e e l it i s wanting in respect toward y

m formerfellowcen-

t r a l bankers t o s a y t h a t t h e r e was 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

exchange rate movements i nv a r y i n gd e g r e e s . Those whose e x p o r t s a r e l e s 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 .







-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 be-

tween m i n i s t e r s , between c e n t r a l bank governors, and between foreign ex-

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 announcement i n

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

suchpresumption!" 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.



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

gold production o r changes i n t h e g o l d p r i c e , b u t it has become exclu-

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 6l l i a r d . The major p a r t o f t h e i n c r e a s e

mi

c o n s i s t e do fc l a i m si nd o l l a r s : 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

on t h e U n i t e d S t a t e s s t o o d at ~ ~ $ m i 0l i a r d a n d c l a i m s i n d o l l a r s

8 l 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 i 0l 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

8 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

1 l

~ ~ $ m i6 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 com-

mercial banks and individuals in the same c o u n t r i e s .



The hugeexpansionof the Euro-dollar market occurred in the two-

y 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 ,

either in dollars or in other currencies, in the Euro-market,where for-

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 M i n t h e domestic U.S.

2 economy o v e r t h e same period.This de-

velopment 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 l

stood a t ~ ~ $ m i6l i a r d ; d e p o s i t s a t i t s foreign branches amounted t o

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

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 US$25 m i l l i a r d . The corresponding

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 Guaranty announced t h a t i n December 1975 approxi-

mately 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 cor-

p 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' autonomybyex-

posing 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

y

c o n t r o v e r s yi n m 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 a

clearing union, which according t o Keynes ought t o havebeenperformed





- 6 -

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

greatestweight on t h ec r e d i t w o r t h i n e s s of theindividualborrower. It

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 imminentsuc-

cessinthereformoftheinternationalmonetarysystem.Duringthe

meeting,anauthoritativevoicespokeinwarningthatthesituationcre-

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 was unmanageable. I n t h e e v e n t ,

theindustrialcountriessucceededinmastering it s o o n e r t h a n a n t i c i -

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 coun-

tries' 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 ~ ~ $ 2 l6 i a r d , and i n mi l

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 ef-

f 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 coun-

t 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 coun-

t r i e s . Between 1973 and 1975 t h e t o t a l amount ofloansgranted on t h e

i n t e r n a t i o n a l c a p i t a l market increased from US$^. 3 m i l l i a r d t o US$13.2

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 -

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 , w i l l come

t o US$42.5 m i l l i a r d . It should, however,bepointedoutthatthisesti-

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 w i l l reduce the

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 indus-

t 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

a l l I 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

M would c o n t r i b u t e

2 l

up t o ~ ~ $m i l8 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 . P a r t oftheremainder

would be covered by export credits; but this would s t i l l l e a v e a substan-

t 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 con-

ducthasdiminished; 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 -

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 . A s almost a l l c r e d i t i s

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 -

tions to private ones, so thetaskofsupervisionhaspassed from i n t e r -

national bodies to national ones, whose surveillance, though keener than

in the past, has nonetheless never reached beyond the boundaries of na-

tional 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 typeofin-

t 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 coun-

tries.



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 -

vate banking system taking over the function o f a clearing union i s t h e

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 eco-

nomic 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 narrow-

ing 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

companies have 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 . Ob-

viously, the transition to economicsystems i n which t h e s t a t e i s extend-

i 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 . O t h e o t h e r

n

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

t h e i r d e p a r t u r e andhaveevengone so f a r as t o p r o p o s e r e s i s t i n g it.



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 finan-

c 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 com-

munityproves t o be incapable of governing monetary events through co-

operation 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 inade-

quacy 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 prob-

lems 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 super-

v 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 con-

t 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

y

bounds a r e t o p i c s o f d e b a t e i n m 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 head of 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 for-

ward 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

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 i s a feature

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

to the fact that in 1975 i n t h e U n i t e d S t a t e s , o f t h e mi

~ ~ $ 2 0 8l l i a r d

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 ~ ~ $ 2 0 8l l i a r d ,

mi

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 )

absorbed approximately half, which i s n o t v e r y d i f f e r e n t from the propor-

tioninItaly 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 , be-

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 . A adequate n

f l o wo fp r o f i t s i s thebasisfordebtfinancing,equityfinancing,and,

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 in-

crease 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

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 . This i s t h er e a s o n

why i n I t a l y t h e Communist party has taken a standagainsttheexcessive

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 appearpara-

doxical;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 en-

courage 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 unem-

ployment.Inthesecircumstances more i s beingrequiredofthebanking

system as an organ of propagation of monetary policy, to the detriment,

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

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 dependence on e x t e r n a l

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

r e l u c t a n t t o introducerestrictivemeasures, andsometimes more i n c l i n e d

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 pub-

l 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 ofunder-

employment 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 authori-

t 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

of

a b i l i t y t o r e g u l a t e flows funds and 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 imagi-

n 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 pay any r a t e of interestwhatsoever."Underlyingthe problem

of 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 its role of distributing sav-

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 , or t h e

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 . Monti and T . Padoa-Schioppa, Studg on t h e Bank-

ing 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 coun-

t 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 op-

pose. 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

t 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 dependence of en-

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 authori-

ties , 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 s m of u

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

that a selectivecreditpolicy is an essential prerequisite for putting

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 -

plied a selectivecreditpolicy;oftentheaccusations come from t h o s e

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

bankingsystemarebasically due t o t h e f a c t t h a t it i s r e q u i r e d t o do

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.

e

W areagainfacedwiththeconsequencesoftheauthorities'inability

t o pursue the desired goals of economic and monetary policy and an at-

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 po-

l 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

accept that funds 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





- 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

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 o f " A l i c e i n Wonderland,"

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 : "He thoughthe saw a b a n k e r ' s c l e r k /

Descendingfrom t h e b u s : / He lookedagain, andfound it was/ A hippo-

potamus:/ ' 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

are unpopular. 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

beenremarkable i n many r e s p e c t s . The angles from you

which have been

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

banker t h a t p e r h a p s youhavenotgiven a l l t h e r e a s o n s why t h e banks a r e

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 .impor-

tance 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 ever-

changingworld--as t h i s g a t h e r i n g s o w e l l knows. W thankyouvery

e much.

You 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 bank-

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 .



N w 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 make

o some comments

on D r . Carli's speech. Dr. G i l b e r t , we arelookingforwardvery much t o

your comments. For f i f t e e n y e a r s you werean economic a d v i s e r i n t h e

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 e

a book. W 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 exchange views with him. The strongestimpression

that remains with m 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

e

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 intel-

l 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 suc-

cession-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 bank must main-

t 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 -

pendence from 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 ques-

tionsraised.



e

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 m 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 not been aware

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 ac-

cept 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 banks were supposed

t o bepopular? 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 .

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

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 . I i n t e n d t o show t h e

l i s t of t h e s e banks t o Governor Carli. And i f he t e l l s m t h a t any of e

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 a q u i t e s u r e I w i l l nothave t o do s o .

m



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 nar-

row marginsofgainand it i s unable t o r i s k l a r g e l o s s e s . Now, we have

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 and t h e

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

d i r e c t o r o f a consortium bank i n London, Steven Davis, entitled The Euro-

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 bank managers. 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 ef-

fort 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, problems bank of

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

f u l l s u p p o r t . " Mr. Burns s a i d t o them,"Gentlemen,yourduty as t h e t o p

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

i 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 mis-

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.

Andwe 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 coun-

t 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 comment now 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 -

f e r e n tt h i n g s . 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

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 I F nor M

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 be-

cause the United States willed it t o be s o o r because it was so arranged

i n t h e I F 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

M

the dollar developed naturally because of i t s enormous convenience t o

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 mar-

k 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 A r t i c l e s shows

IF

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

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 a fewmonths

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

ofothermonetaryauthorities. I f e e l sure, however, t h a t it was notbe-

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

this: 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 coun-

t 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

a u t h o r i t i e s .T h i s 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

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

they can get a reasonable rate of interest 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 .



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 Gov-

ernor 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 I









just did not rush forward to fill in their balance sheets with SDRs t o

theextentthatthey have done w i t h d o l l a r s . who

And canblamethem

when what stands behind the S R i s just not equal to the financial

D

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 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

payments and 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

D

w i t h t h e S R u n t i l t h e a d j u s t m e n t had been brought about because activa-

t 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

of t h e s i t u a t i o n , t h e d e a l was made. The o n l y t r o u b l e was t h a t t h e au-

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,

D

and t h e S R suffered in consequence.



The second condition that worked a g a i n s t t h e S R was t h e p o l i t i c a l

D

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 S R f o r i t s exportscollectswhat?

D 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 dichotomy between 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

acceptable as a r e s e r v e t o s p e n d , b u t it j u s t happens t o have c e r t a i n

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 com-

petitive 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 . e

H says 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

t h e commercialbankshave no monetary sovereignty, which is an attribute

of t h e c e n t r a l bankand t h e governmentwhich stands behind i t .



may

You 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 money came from non-OPEC c o u n t r i e s :

Canada,Belgium, the Federal Republic of Germany, the Netherlands, Switzer-

l 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 a lotof fi-

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 and Dutch banks have 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

when t h e f a c t s w a r r a n t 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

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 developedcoun-

t 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-warming atmosphere. 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

today? I completelyagreewith Governor Carli when he c i t e s Governor

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 any and 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 beyond monetary 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 al-

most 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 monetary powers tosolvethecountry'sproblems.Other-

wise, 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 words what 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 . W a r e g r a t e f u l f o r t h a t .

e









- 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.



y

F i r s t , m 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 sec-

t 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 by what hashappened. I do be-

l 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 in-

t e r n a t i o n a l trade. It seems t o m t h a t what has happened i n r e c e n t y e a r s

e

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 .

The q u a n t i t y o f l i q u i d f u n d s has grown, as a consequenceofthe means by

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 ab-

sorbed? 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

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 whose

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 exchange r a t e s a r e d i f f e r e n t

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 be-

cause 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

i n a g a i n , and then going out again--1 think demonstrates t h a t i n Europe

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 econ-

omy 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 pro-

ductivesectorextended by commercial banks. m

view,which i s c e r t a i n l y

influenced by t h e I t a l i a n e x p e r i e n c e , i s t h a t , f i r s t , i f t h e d e f i c i t of

thepublicsectorgoes beyond c e r t a i n limits, t h e c e n t r a l bank i s con-

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 , be-

cause 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 mea-

s u r e s aimed a t extending the obligation of commercial banks t o take over

i n v a r i o u s forms--purchasingofbonds, 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

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 commercial banks have been obligedre-

c 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 con-

c 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

bond market ( i n c a s e t h e bond marketdoesnotrespond) , and g r e a t e r

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 m speech--I have not analyzed the sources of

y

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 trans-

formed i n t o v a r i o u s formsofinvestment, i s transformedintoexpendi-

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 by import-

ingsavings fromabroad. What it means i s t h a t a c o u n t r y i n whichsavings

are being destroyed replaces savings by importing savings from abroad.

It means, t o quote myself, that the country concerned, instead of impos-

i 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 ex-

p 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 . M personalconclusion i s t h a t i n a democratic,

y

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 pos-

s 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 prob-

Zsm8. 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 fi-

nancial 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.

Because I belong t o a c o u n t r y t h a t i s developedanddeveloping at the

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

the various international institutions too little attention i s being paid

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 pros-

p 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. s

A 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

inEnglish,French,andSpanish. Wl thoseof you who a r e n o t on t h e

il

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. e

W have had soDe thoughtfulsuggestions and I must say

thatthishas been a very good meeting.Beforeterminating, I would

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 a l of you who have come here. Thank you very much.

l









- 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 Min-

i 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

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 , DeputyChairman o f t h e I s t i t u t o

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 Con-

siglio Nazionale delle Ricerche and t h e Managing Committee o f t h e Asso-

c 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 Euro-

peanPaymentsUnion, 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 De-

velopment, the International MonetaryFund,and t h e Asian Development

Bank.



H hasspokenand

e 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 e

Padua. H 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 Eco-

nomic 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, hepro-

duced 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 Na-

t 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

charge of producing the Annual Reports of the Bank, whichhavehad a

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 . e

H assistedinthe

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 Dis-

c i p l i n e of the Balance of Paymentsand t h e Design of the International

Monetary System," which analyzed the relation of the gold price to the

functioning of the system.



He r e t i r e d from t h e BIS at t h e end of 1975.









- 26 -

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. ) Kaoru Inouye (Japan)

Roger Auboin (France) Albert E. Janssen (Belgium)

Wilfrid Baumgartner (France) Raffaele Mattioli ( I t a l y )

S. Clark Beise (United States) J .J. McElligott (Ireland)

B.M. Birla ( I n d i a ) Johan Melander (Nomay)

Rudoli" Brinckmann (Germany, Fed. Rep.) Donato Menichella( I t a l y )

Lord Cobbold, P.C. (United Kingdom) Rnmanuel Monick (France)

Miguel Cuaderno (Philippines) Jean Monnet (France)

R. v. Fieandt (Finland) Walter Muller(Chil e )

Maurice F &

re (Belgium) Juan Pardo Heeren (Peru)

E. . C

Fus sell (New Zealand) Federico Pinedo (Argentina)

Aly Gritly ( E g y p t ) Abdul Qadir (Pakistan)

Eugenio Gudin(Brazi 2) Sven Raab (Sweden)

Gottfried Haberler (United States) David Rockefeller(United States)

,

Viscount Harcourt K.C .M.G. , Lord Salter, P.C., G.B.E., K.C.B.

O.B.E. (United Kingdom) (United Kingdom)

Gabriel Hauge(United States) Pierre-Paul Schweitzer(France)

Carl Otto Henriques(Denmark) Samuel Schweizer (Switzerland)

M.W. Holtrop (Netherlands) Allan Sproul (United States)

Shigeo Horie (Japan) Wilhelm Teufenstein ( A u s t r i a )

Clarence E. Hunter (United States) Graham Towers (Canada)

H.V.R. Iengar ( I n d i a ) Joseph H. Willits (United States)









- 27 -

BOARD OF DIRECTORS





Chairman, Washington

W. Randolph Burgess,





,

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









20431

Address: c/o International Monetary Fund, Washington, D.C.









- 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)



1965 The Balance Between Monetary PoZicy and Other Instmunents

of

in

Economic PoZicy 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 Lessons Be Learned--Paper by

to

Henry C. Wallich; Commentaries by J. Morse and I.G. Pate1

C.



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 -