FOREIGN TRADE: Hoard of Gold

The Federal Reserve Board took a searching look last week at prospects for postwar trade, found them bright. The chief reason: foreign nations (governments and central banks) have piled up an immense hoard of $17 billion in gold and U.S. dollar credits, a lush increase of $7 billion in the last three years. More important, much of this is held by onetime gold-poor nations, notably in Latin America. Typical example: Brazil, which owned a mere $50 million in gold in December 1940, now has $295,000,000 put away.

This foreign hoard has piled up for several reasons: while the U.S. has been Lend-Leasing goods and weapons to some nations, it has had to plunk out cash to import huge quantities of raw materials and stockpile supplies in foreign countries. Another drain on the U.S. is to the 6,000,000 U.S. servicemen abroad. Although the U.S. is now exporting $14 billion in goods a year, the Board pointed out that only some 50% of this is for cash. The rest is Lend-Lease. In fact, excluding Lend-Lease operations, the U.S. has had an “unfavorable” balance of trade (i.e., its cash imports have been greater than cash exports) ever since the end of 1942.

The increase in payments due to foreign nations has brought the amount of gold owned by the U.S. down from $23 billion in October 1941, to $21 billion, may drop it another $5 billion when & if foreign nations and individuals are again permitted to cash in their dollar credits for gold.

But the Board finds that this short-term loss will prove a long-term gain. Many a nation badly in need of U.S. goods will have the cash to buy them when they are again available, or at least have far better credit on which to borrow.

Furthermore, if U.S. exports once again become greater than imports, the foreign gold and dollar hoard will prove a temporary buffer against the artificial exchange controls which helped strangle foreign trade before the war. Said the Reserve Board: “Foreign countries will be able to meet larger deficits in their international transactions with the U.S., should such deficits occur, without resorting to currency depreciation, exchange control or drastic measures of internal deflation.”