Post-war developments: 1945–1960

  • J. A. H. de Beaufort Wijnholds
Part of the Publication of the Netherlands Institute of Bankers and Stock Brokers book series (PIBS, volume 31)


This chapter deals with the development of reserve need theory during the first fifteen years after the Second World War, i.e. before the problem of international liquidity captured widespread attention. Section i describes the actual reserve situation during this period, providing the background against which the development of analysis up to 1960 can be set. The debate on the adequacy of global reserves between the United Nations and the IMF during the early fifties is treated in section ii. Sections iii and iv cover the monetary approach toward assessing the need for reserves as developed in the Netherlands and in the United States. Finally, the IMF study of 1958 on international liquidity is discussed in section v.


International Reserve Liquid Asset International Liquidity Foreign Exchange Reserve Cash Balance 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. 1a.
    Cf., for instance, Thomas Balogh, The Dollar Crisis, Oxford, 1949,Google Scholar
  2. 1b.
    and Charles P. Kindleberger, The Dollar Shortage, New York, 1950.Google Scholar
  3. 1.
    United Nations, National and International Measures for Full Employment, Lake Success, 1949.Google Scholar
  4. 2.
    United Nations, Measures for International Economic Stability, New York, 1951.Google Scholar
  5. 3.
    Ibid., p. 32.Google Scholar
  6. 1a.
    Cf. “The Adequacy of Monetary Reserves”, IMF Staff Papers, October 1953, pp.181,Google Scholar
  7. 1b.
    Cf. “The Adequacy of Monetary Reserves”, IMF Staff Papers, October 1953, 182.Google Scholar
  8. 2.
    IMF, Annual Report, 1952, p. 6.Google Scholar
  9. 3a.
    Ibid., pp. 45,Google Scholar
  10. 3b.
    Ibid., 46.Google Scholar
  11. 4.
    “The Adequacy of Monetary Reserves”, IMF Staff Papers, October 1953; reproduced in IMF, The International Monetary Fund 1945–1960, Volume III, Washington, 1969.Google Scholar
  12. 1.
    Ibid., pp. 188, 189.Google Scholar
  13. 2.
    Ibid., p. 192.Google Scholar
  14. 3.
    Ibid., p. 195.Google Scholar
  15. 4.
    Ibid., p. 203.Google Scholar
  16. 5.
    The figures found for the ratio of gold and foreign exchange to imports for the world as a whole were: 1928–42%; 1938–129%; 1951–75%; and 1952–78%. Excluding the United States the figures were: 1928–35%; 1938–69%; 1951–39% and 1952–40%. It was emphasized that the adequacy of 1938 reserves had to be judged relative to “the total amount of trade that would have been carried on under liberal trade policies and at a high level of employment” (p. 212), and not relative to the actual figures (which were too high). Such considerations had not entered into the arguments presented in the above-mentioned UN reports, which also compared the global reserve level to its pre-war figure. According to the Fund staff the fall in the reserves/imports ratio between 1938 and 1951 overstated the decrease in reserve adequacy between those years. It did believe, however, in view of a presumed increase in the volatility of world trade, that a larger amount of reserves relative to trade was necessary at that time (1953) “than would have been the case in 1938, in order to provide the same degree of relative adequacy” (pp. 212, 213).Google Scholar
  17. 1.
    In 1953 Harrod concluded in an article, “Imbalance of International Payments”, IMF Staff Papers, April 1953, that a shortage of international reserves had developed, a situation which he attributed to the growth of gold reserves lagging behind the growth of world trade. In later publications he advocated a rise in the official price of gold. Cf., for instance, the following publications by Sir Roy Harrod: The Dollar, London, 1953; “Plan for Restoration of Full Gold Convertibility of the Dollar together with a Revision of the Gold Content of the Dollar”, Gold Reserve Act Amendments, Hearings US Senate, Washington, 1954; “Memorandum of Evidence”, (Radcliffe) Committee on the Working of the Monetary System, Principal Memoranda of Evidence, Vol. 3, London, 1960 (especially pp. 115, 116); “The Dollar Problem and the Gold Question”, in Seymour E. Harris (ed.), The Dollar in Crisis, New York, 1961; Alternative Methods for Increasing International Liquidity, European League for Economic Cooperation, Brussels, 1961; Reforming the World’s Money, London, 1965.Google Scholar
  18. 2.
    Cf. Section vi, chapter 5, and section ii of chapter 6 below.Google Scholar
  19. 3.
    “Economic growth is the grand objective. It is the aim of economic policy as a whole…. Price stability is a subordinate objective.” (Harrod, Reforming the World’s Money, pp. 77, 78).Google Scholar
  20. 4.
    Cf. also Harrod’s use of the symptomatic method, discussed in section ν of chapter 5.Google Scholar
  21. 1.
    Cf. Annual Reports of the Nederlandsche Bank, from 1951 to 1958.Google Scholar
  22. 2.
    Domestic money stock plus domestic secondary liquid assets, i.e. broad money supply (M2).Google Scholar
  23. 1.
    Cf. G.A- Kessler, Monetair Evenwicht en Betalingsbalansevenwicht (Monetary Equilibrium and Balance of Payments Equilibrium), Leiden, 1958, pp. 398–401.Google Scholar
  24. 1.
    Cf. M.W. Holtrop, Money in an Open Economy, Leiden, 1972, particularly the introduction by G.A. Kessler, p. XXVII et seq.Google Scholar
  25. 2.
    The Netherlands provides an example of a typical open economy, with imports amounting on average to 49% of its GNP for the period 1971–75. For the United States — a typical closed economy — the corresponding figure is 7%.Google Scholar
  26. 3.
    This matter is pursued further in section i of chapter 10 below.Google Scholar
  27. 2.
    Cf. Report of the Nederlandsche Bank for the year 1956, pp. 59, 60.Google Scholar
  28. 3.
    Cf. Report of the Nederlandsche Bank for the year 1965, p. 77.Google Scholar
  29. 4.
    The Report of the Nederlandsche Bank for the year 1968 stated that: “For the present the quantitative information on these and similar questions is still too uncertain, and too defective, to permit revision or refining of the calculations”. From the Bank’s Report for the year 1969 onward the customary section on the confrontation of international reserves and uncommitted liquid assets was omitted.Google Scholar
  30. 5.
    Cf. Kessler, pp. 400, 401.Google Scholar
  31. 2.
    Kessler (English summary), p. 462.Google Scholar
  32. 3.
    Tibor Scitovsky, Economic Theory and Western European Integration, London/Stanford, 1958.Google Scholar
  33. 1.
    This is the simplified equation for the case of exogenous exports (cf. Jürg Niehans, “The Need for Reserves of a Single Country”, in IMF, International Reserves: Needs and Availability, Washington, 1970, p. 61). Scitovsky actually took into account the increase in exports due to a rise in income in the rest of the world occasioned by the increase in imports of the country concerned. He therefore derived a slightly different equation than produced here; cf. Scitovsky, pp. 104–106.Google Scholar
  34. 2.
    Cf. Harry G. Johnson, International Trade and Economic Growth: Studies in Pure Theory, Cambridge (Mass.)/London, 1958, pp. 156–158.Google Scholar
  35. 1.
    Cf. p. 49 above.Google Scholar
  36. 1.
    International Reserves and Liquidity: A Study by the Staff of the International Monetary Fund, Washington, 1958. (Reproduced in The International Monetary Fund 1945–1965, Volume III).Google Scholar
  37. 2.
    Ibid., p. 9.Google Scholar
  38. 4.
    International Reserves and Liquidity, p. 45.Google Scholar
  39. 5.
    Ibid., p. 69.Google Scholar
  40. 1.
    Ibid., p. 93. It made several provisos, however, such as further progress in restoring and maintaining domestic balance.Google Scholar
  41. 2.
    Cf. Report by the Executive Directors to the Board of Governors of December 1958 on the “Enlargement of Fund Resources through Increases in Quotas”; reproduced in The International Monetary Fund 1945–1965, Volume HI.Google Scholar
  42. 3.
    In the Report of the Committee on the Working of the Monetary System (the so-called Radcliffe Report, London, 1959) the problem of international liquidity was also placed in a broader context, and was related especially to the problem of international balance (cf. pp. 242–252). As to the reserve position of the United Kingdom, the report concluded that British reserves were “far from adequate in relation either to the swings in the United Kingdom’s balance of payments that are liable to occur or the balances in sterling that can be drawn upon at call” (p. 244). The report contained a lucid exposition of the complex way in which Britain’s role as the center of the sterling area influenced its reserve position and reserve need (pp. 237–240).Google Scholar
  43. 4.
    Cf. Thomas Balogh, “International Reserves and Liquidity”, Economic Journal, June 1960.Google Scholar
  44. 5.
    Ibid., p. 358.Google Scholar
  45. 1.
    International Reserves and Liquidity, p. 17.Google Scholar
  46. 2.
    Although, as pointed out above, at various places emphasizing its limitations.Google Scholar
  47. 3.
    International Reserves and Liquidity, p. 17.Google Scholar
  48. 4.
    Balogh, pp. 361, 362.Google Scholar

Copyright information

© Springer Science+Business Media New York 1977

Authors and Affiliations

  • J. A. H. de Beaufort Wijnholds

There are no affiliations available

Personalised recommendations