A budgetary bias for United States intervention in foreign exchange markets

The procedures used and the rationale given in 1962 for the Federal Reserve’s internal authorization of a SWAP fund to intervene in foreign exchange markets, transactions that often involve foreign loans, are revealed from source material. Despite the existence of a Congressionally approved fund in the Treasury for the same purpose and despite the pleadings of one Federal Reserve governor who thought the fund may be illegal and who objected to the SWAP fund’s basic justification-an ‘unlimited pocketbook’ without Congressional budgetary approval-the internally authorized SWAP fund grew to over $30 billion by the mid 1980’s. The Federal Reserve’s superficial methods of informing the Congress and the public in 1962; the international economic atmosphere at the time of the fund’s implementation; and the SWAP fund’s method of operation, that disseminates exploitable inside information, are described. An explanation of why the Congress has failed to act to assume budgetary authority and the benefits from the imposition of the Congressional budgetary process are suggested.