theanonymousamerican.com

These are the minutes from a 1990 Federal Reserve Board meeting.  This is during Dr. Paul's hiatus from Congress, and I think you will find it intriging.
__________________________________________________
CHAIRMAN GREENSPAN.
May I just ask a factual question? Has there been a significant or meaningful political change since we initiated that on the basis of the concern that we shouldn't back the dollar with foreign currencies? Is that spoken of politically as an issue? Does anybody have a sense of that?

MR. TRUMAN. It tends to be associated with one or two people
in Congress at least one of whom, Ron Paul, is not there anymore. It was also associated with concern and confusion in the outbreak of the debt crisis and the misuse of that power to bail out Brazil, Mexico, or any of your favorite or nonfavorite LDCs. It is not currently an issue. I'm not saying that it wouldn't be noted--

MR. JOHNSON. It could quickly become an issue if it looked
as if we were bailing out the currencies of other countries.

MR. TRUMAN. If the circumstances were such that the Congress
felt that the dollar should go up and we were excessively buying
foreign exchange--which I think is what you're talking about--it would become an issue. That is correct. Generally the bias in Congress hasbeen the other way, however.

MR. SYRON. It's very easily demagogued; that's the really
dangerous thing from our perspective.

CHAIRMAN GREENSPAN. Look, the truth of the matter is the
reason we built up at least part of that $20 billion is that in the
early stages it just did not seem credible that the dollar would firm
as much as it has. And the early accumulation of both yen and
deutschemark balances was considered to be a good speculative
investment that we would get rid of relatively quickly. Part of the
problem is that the markets have behaved in a way that turned out not to have been expected. I think that has gone against us.

MR. JOHNSON. Mr. Chairman, that raises a very important
point along the lines of what Ed Boehne was talking about initially.
It seems that there ought to be some understanding in the Committee about where we cross over the line from just providing intervention to resist disorderly conditions and at what point we decide that it has gotten out of control and the fundamentals are really working against us. It seems to me that if we accumulate $20 billion in foreign exchange reserves over a relatively short period of time, that's a signal that we've crossed over the line.

CHAIRMAN GREENSPAN. Well, I wouldn't disagree with that; in fact, that's precisely the reason we increasingly fought the Treasury as these sums began to rise. In other words, as soon as they began to get into double-digits it was a signal that we were doing precisely that. My own judgment is that if we were not there, the total, which is now what--$45 billion?

MR. CROSS. Yes.

CHAIRMAN GREENSPAN. I would bet you that the total would be
$60 billion at this stage.

MR. JOHNSON.
Well, that may be true as an empirical matter; but the potential is certainly there for it to create mysterious volatility problems, especially if we're intervening in large amounts. I concede that empirically that may not have been the case so far, but potentially it clearly could be. And that's something we should take into account. But I think we ought to go back to what Bob Parry was saying. I wouldn't worry so much about this whole thing if I thought it was totally ineffective. I think generally sterilized intervention is grossly ineffective. But there are times--and I think even this research shows that -- when it can be effective at least in the short to intermediate term. The time that it is effective, at least temporarily if not even into the intermediate term, is when there is concerted multilateral intervention, which basically gives a signal to the market that there's a coordinated effort by all the major industrial countries to achieve some exchange rate level. Now, whether they ultimately achieve it or not, it creates in my opinion potential turmoil in the market in the short to intermediate term. And it can even change the psychology of the fundamentals in my opinion.

MR. PARRY. But it seems that we all agree with this. I think the issue is: How can we be effective in getting that viewpoint across--by playing the game or by picking up our mitt and going home?

MR. JOHNSON. Well, I can cite you an example that I have cited before. You can argue both sides of that. I think there have been times when we have been effective playing the game and there have been times when we have been totally ineffective. A good example is from my experience when I was at the Treasury. I have mentioned this to Ted and others before. When I was at the Treasury, Beryl Sprinkel was Undersecretary and there was a policy of non-intervention. Yes, there was some modest intervention at times when the Treasury decided that it was useful, but only when they decided it was useful. The Fed's views during the whole period were completely shut out. From my experience, I don't remember any cooperation or any plea by the Fed during that period having any effect whatsoever.

MR. JOHNSON.
I think we can have some guidelines to say in general what kind of intervention we find acceptable. No, I wouldn't tie anyone's hands. It ought to come to this table and there ought to be a discussion once we cross over some threshold we consider to be outside the frontier of what we thought was reasonable. We ought to decide it, though.

MR. PARRY. Would you sketch out what the environment will be like after that point? In other words, what would be our role when we've reached that point where we say we're not going to intervene? What influence would we have? How would that be preferable?

MR. JOHNSON. Well, I'll be honest. My view is that we've had considerable influence standing firm. The fear at the Treasury of the Fed pulling out of this process in my opinion has been as strong a disciplinary force as anything else.

MR. PARRY. I don't disagree with that, but you say we will
pull out at some point. After we've pulled out what kind of
discipline can we exert?

MR. JOHNSON. Well, there are several things we can do. I'm not saying I would prescribe these, but we have a lot of tools. One is that we don't approve any further intervention limits or intervene on our account. We say, okay, Treasury, you have independent authority to intervene as a matter of Treasury policy and you can do it for your account. But the other point is that we also have the authority to approve their warehousing of foreign currencies. Now, they can warehouse, as the Chairman says, in other places possibly.
I'm not sure where.

MR. ANGELL. Where?

MR. JOHNSON. Other central banks?

CHAIRMAN GREENSPAN. The BIS.

MR. JOHNSON. But I can't conceive of the BIS doing that.

MR. ANGELL. Yes, that would be risky for them.

MR. JOHNSON. But the point is there are tools. First of all, we don't have to do it for our account and that becomes clear to the market. We don't have to warehouse their foreign exchange reserves. Those are basically the disciplinary tools we have. And I think before the Treasury would risk confronting that, they would listen to us. But we've got to be willing to use those tools or we're not going to get them to listen. The Chairman has been very effective in my opinion in getting them to listen at times, but I think you would concede that they have been pretty stubborn.