Selected Aspects of the Management of U.S.-Owned Excess Foreign Currency

Published by the Government Accountability Office on 1971-12-29.

Below is a raw (and likely hideous) rendition of the original report. (PDF)



                 Dear Mr. Secretary:
                        Over the years the United States has accumulated millions          of
                 dollars of foreign currencies as a by-product of its foreign aid
                 loan programs and its ssles of agricultural          commodities under the
                  authority of title     I of the Agricultural     Trade Development and
                 Assistance Act of 1954, as amended (Public Law 480). On May 28,
                 1971, we sent to the Depar"kents of State and Treasury a draft
                 report dealing with selected-aspects         of the management of U.S.-
                   I-     excess foreign   currencyb  particularly    with respect to sales
                 of curr&&.es      to tourists   and-non-profit    organizations for dollars
                 and to conversions to dollars or other currencies.             Comments were
                 received from the respective departments on September 28, 1971, and
                 July 13, 1971. Our draft report covered the following matters:

                 Effect of Accounting         Practice   on

     !                 From 1961 through 1970 the Treasury Depsrtmentfs convertible
                 currency accounts were charged with the equivalent of $llO million
                 to pay for general U.S. Government obligations.           These obligations
                 could have been paid for with non-convertible         currencies which
                 would have increased the potential      for benefitting     the U.S. balsnce-
                 of-payments position.     Since the convertible     currencies are avail-
                 able for sale to tourists     and non-profit  organizations,     when U.S.
                 obligations  are paid with these currencies,      that much less is
                 available for sale for dollars.

                        The Department of Treasury acknowledged that

                                   I'-x*+onsultations between the GAOand Treasury
                                   staffs during the process of writing your report
                                   had stimulated a highly useful reexamination of
                                   procedures for the sales or conversions of local
                                   currencies in excess currency countries,
         -7 ’                      "The procedures now in effect in excess and near-
                                   excess countries operate so as to preserve the
                                   convertible  portion of local currency holdings for

                convertible uses, as recommended in your report.
                As the report indicates, we have already restored
                almost three quarters of the $110 million you
                estimate were drawn from convertible    locsl currency
                belances when the use of non-convertible     accounts
                would have served the purpose. Additional      amounts
                are being restored."
           The Department of Treasury response pointed out, however, that
     because of the fairly  large excess currency balances, there was no
     balance of payments loss by the use of the old sales procedures.
     It went on to say that the new procedures may yield future balance
     of payments benefits as accruals to convertible   currency accounts
     diminish with the termination of P.L. 480 sales for local currency
     (scheduled for December 31, 19'71).

     Potential for Greater Balance-of-Payments
     3enefits Through Sales or Conversions of
     Excess Foreign Currencies

            Approximately 90 percent of the cumulative total of $167 million
     of U.S.-owned excess foreign currencies available for sale to U.S.
     tourists   and non-profit    organizations  remained unsold as of December
     1970." In view of the reported difficulties         in selling foreign cur-
     rencies to eligible    parties,    and the precedent established in
     converting these currencies on a government-to-government level, we
     proposed that host country conversion of unsold amounts be pursued
     as the most practical     means for the United States to achieve maximum
     benefits from these currency holdings.
P-         The Depertment of State disagreed with this    recommendation
/    saying:

                "We believe it impracticable    to reopen the terms
                of old agreements for the sole purpose of modifying
                them in the U.S. financial   interest.   The greatly
                tightened payment terms required by law in new
                P.L, 4.80 sales agreements leave little   leverage for
                adjustment of pwent     terms in prior agreemen%,
                purely for United States benefit."

         They suggested an alternative solution in the utilization          of
     Qese amounts for payment of U.S. obligations, i_n_par%xiLax         for

     aWe understand that during the period January 1, 1971 through June 30,
      1971, an addition&L $1 million of the aroount av&lable was sold.

payment of internationsl   travel.   The Department of Treasury advised
that the basic agreements usually impose no limitation      for payments
of international   travel; the estimates for international     travel are
significant--for   all excess currency countries $7 million      were
expended in calendar year 1969, the only year for which figures are

      We agree that the alternative    solution offers good prospects
for additional utilization.     In view of the Department of Statels
belief that it is impracticable     to reopen the terms of the old
agreements, we do not plan to pursue our earlier proposal on this
matter at this time.

Delays in Conversion of Foreign Currencies

      Delays in conversion of foreign currencies for agricultural
market development purposes and to finance cultural. and educational
exchange programs have occurred as a result of (1) administrative
procedures of the U.S. Government for requesting conversions and
(2) the failure    of certain countries to promptly effect conversions
requested.     These delays have been costly in terms of additional
interest cost on increased U.S. Treasury borrowings because of
unconverted funds.     There is also potentisl loss from devaluation
of currencies.
      During the course of our review we suggested certain modifica-
tions to U.S. Government administrative  procedures for conversion
of foreign currencies,   As a result of these suggested changes, a
Treasury official  acknowledged that the new system reduced the
usual time for conversions from about 6 months to about 3 months.
      Concerning delays in conversions by foreign governments, we
proposed to the Department of State that it provide the necessary
monitoring service and follow up with appropriate foreign govern-
ment officials  to mir&nize conversion delays.

       The Department of State replied:  "We have no objection to
this recommendation. We will continue to fulfill    this role in the
future, as we believe that we have in the past, together with the
Treasury Depar+Jnent and the appropriate American embassies.l'   The
Department was concerned that our report might leave the impression
that -they have been lax in seeking conversions for educational
exchange and wished to emphasize that they have assiduously pursued

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             the most rapid conversions possible; that the significant    reason
             for delayed conversions has been the difficulties    of the foreign
             governments  in effecting timely conversions; and that the political
             and economic reasons for the present inability    to make conversions
             in the outstanding balances in the United Arab Republic and Pakistan
             are self evident.

                   In view of the actions taken and proposed to be taken by the
             departments, we do not plan any further reporting on this matter.
                  This letter   is also being addressed to the Secretary   of State.

                   Copies of this letter are being sent today to the Senate and        t,1.: --
             House Committees on Government Operations, the Foreign Operations          c,  ?';
             and Government Information Subcommittee of the House Committee oz          ~ 5^_
             Government Operations; the Senate end House Appropriations                 .c
             Committees; the Senate Foreign Relations Committee; the House                  .'.
             Foreign Affairs Committee; and the Office of Management and 3udget.       A I' ' ;

                   We should like to express our appreciation for the cooperation
             and assistance given our representatives   during the course of this
                                                Sincerely   yours,

                                              / ye V. Stovdl
                                              2 Director

             The Honorable
             The Secretary of the Treasury