of interest to them. This participation by representatives of interested non-member agencies continued a practice which has been followed during the entire period of the Council's existence.

II. UNITED STATES INTERNATIONAL TRANSACTIONS

INTRODUCTION

In its three most recent Semiannual Reports the Council reviewed the magnitude and significance of United States foreign investment and changes in foreign gold and dollar resources. In the present Report, developments in these fields are reviewed briefly in relation to the United States balance of payments.

During the 6 months ended June 30, 1956, the international transactions of the United States reached record high levels, both in the aggregate and in many individual components. Exports of goods and services (other than those supplied under military grant programs) amounted to $11.2 billion, 9 percent above the total for the previous 6 months and almost 17 percent above the level of the comparable 6 months in 1955. Imports of goods and services apart from United States military expenditures abroad amounted to $8.3 billion during the 6-month period under review, 16 percent above the comparable 6 months in 1955. Other categories of United States international transactions, however, also rose, and provided foreign countries with the net amount of over $4 billion during the 6 months under review. These included private United States investment abroad, which was at the highest rate of the postwar period, a new high in United States military expenditures abroad, and increased net United States Government loans and accumulations of foreign currencies from sales of surplus agricultural products, but smaller amounts of non-military grants. The excess of total United States international payments over total United States receipts, which has occurred in every 6-month period since the end of 1951, resulted in foreign gains of over $1 billion in gold and dollar assets during the period under review. Further gains in foreign gold and dollar assets occurred in the third quarter of 1956.

UNITED STATES MERCHANDISE TRADE

The record level of United States non-military merchandise trade reflected high rates of industrial and agricultural activity both here and abroad. United States exports were spurred by a greater foreign demand for capital goods, raw materials, and foodstuffs, while the expanding United States economy provided a greater market for imports.

The foreign gain was composed of an increase of $1.2 billion in dollar assets and a net sale to the United States of $0.1 billion in gold.

TABLE 1.—Balance of payments of the United States,* fiscal years 1955 and 1956 [In millions of dollars]

In the first half of 1956, non-military merchandise exports aggregated $8.3 billion, up from $7.2 billion in the preceding 6 months and $7.0 billion in the first half of 1955. Increases were recorded in shipments to every major foreign region, with sales of agricultural products rising in about the same proportion as non-agricultural commodities. Compared to the first half of 1955, exports of capital goods were up sharply in the first half of 1956. Finished manufactures accounted for over half ($675 million) of the increase in exports, and the rise in foodstuffs exports accounted for about one-fourth.

United States merchandise imports amounted to $6.4 billion in the first half of 1956, as compared with $5.9 billion in the preceding 6 months and $5.6 billion in the first half of 1955. The rise in the total for the fiscal year 1956 reflected increases in imports of coffee, petroleum, metals, and finished manufactures. Geographically, the rise was accounted for principally by increases in imports from Western Europe, a number of Latin American countries, Canada, and Japan.

UNITED STATES PRIVATE CAPITAL

During the first half of 1956, the net flow of United States private capital overseas reached a new high level. Compared to the first 6 months of 1955, capital outflow more than doubled, at an annual rate of $2.2 billion. Direct investment abroad in the period under review was at an annual rate of more than $1.2 billion, compared to a rate of

about $0.7 billion in the previous period. On a fiscal-year basis, direct investment increased from $0.6 billion in 1955 to almost $1.0 billion in 1956. The net outflow of long-term portfolio capital amounted to about $0.5 billion in the fiscal year 1956, compared with about $0.2 billion during the fiscal year 1955. The net outflow of United States private short-term capital decreased from $0.6 billion in the fiscal year 1955 to $0.3 billion in the fiscal year 1956, so that the total outflow of private portfolio investment, including shortterm capital, remained at roughly the same level in fiscal 1956 as in

1955.

TABLE 2.-Net United States private capital outflow on direct and portfolio 1 investment, by area, fiscal years 1955 and 1956

NOTE.-Excludes undistributed subsidiary earnings, which were estimated at $868 million in calendar Source: Department of Commerce.

1955.

The rise in direct investment outflow during the current 6 months compared with the first half of 1955 represented increased movements to all areas. Over half of the increase occurred in Canada and over one-fifth was in Latin America, while the rise in metropolitan Western Europe was negligible. The increase in United States long-term private portfolio investment abroad was concentrated in Canada to an even larger extent than direct investment.

These figures do not include the reinvestment of earnings of foreign subsidiaries of United States companies, which were estimated at $868 million in the calendar year 1955.

MAJOR UNITED STATES GOVERNMENT PAYMENTS ABROAD

In the 6 months under review, United States Government net economic and relief grants, loans, and other capital movements were at an annual rate of $2.4 billion. In addition, military expenditures abroad were made at an annual rate of about $3.1 billion.* While the rate of these major United States Government payments increased by about 24 percent over the previous 6 months, it was almost identical with the rate during the first half of 1955.

Over the past 5 years there have been significant shifts in the purposes for which major United States Government payments abroad have been made. United States Government economic and relief grants were at an annual rate of $1.7 billion during the period under review, substantially below the $3.0 billion in the full calendar year 1951, while military expenditures abroad were at a rate of $3.1 billion, compared to $1.3 billion in 1951. While there was little change in net United States Government loan outpayments (at an annual rate of $0.2 billion), short-term Government capital outflow, largely associated with the acquisition of foreign currencies from sales of surplus agricultural commodities, rose from a negligible figure in 1951 to an annual rate of almost $0.5 billion during the first half of 1956.

Significant changes have also occurred since 1951 in the geographic distribution of these Government transactions. In 1951 United States non-military grant aid of $3.0 billion went almost exclusively to Western Europe ($2.4 billion) and Asia, Africa, and Oceania ($0.6 billion). In the first half of 1956, Asia, Africa, and Oceania received grant aid at an annual rate of $1.1 billion, and Western Europe at an annual rate of $0.5 billion. United States military expenditures totaled $1.3 billion in 1951, of which $0.8 billion were made in Asia, Africa, and Oceania and $0.4 billion in Western Europe and dependencies. During the first half of 1956, United States military expenditures were at an annual rate of $2.1 billion in Western Europe and dependencies, $0.8 billion in Asia, Africa, and Oceania, and $0.2 billion in Canada.

FOREIGN GOLD AND DOLLAR RESOURCES

Continued high levels of United States imports and United States Government payments abroad and the increased flow of United States private capital to foreign countries have enabled foreign countries to purchase record amounts of goods and services from the United States and also to increase their holdings of gold and dollar assets. During the first half of 1956 foreign countries gained approximately $1 billion in gold and liquid dollar holdings. About 60 percent of this increase accrued to Western European countries and their dependencies.

The gain in foreign holdings of gold and dollars during this period represented a continuation of the rise in foreign holdings of such assets which has gone on steadily since the widespread exchange rate adjustments of September 1949. On December 31, 1949, foreign holdings of gold and liquid dollar assets (exclusive of holdings of international institutions and the U. S. S. R.) were estimated at $15.8 billion. As of June 30, 1956, these assets had increased to an estimated $28.5

Military transfers under grants amounted to $1.7 billion during the first half of 1956 compared to $1.1 billion in the first half of 1955.

billion. Western European countries and their dependencies gained almost 70 percent of the total increase in the gold and liquid dollar assets of foreign countries. The remainder of the increase was divided fairly equally among Latin America, Canada, and Asia and Oceania. These increases resulted primarily from transactions with the United States and the retention of new foreign gold production.5

Total estimated world gold holdings on June 30, 1956 (exclusive of the U. S. S. R.) were $38.4 billion, of which the United States held $21.9 billion and international institutions $1.7 billion. Thus, the United States held 57 percent of the world's gold reserves.

TABLE 3.-Estimated world gold reserves and dollar holdings, June 30, 1956, and Dec. 31, 1955, 1954, and 1949

NOTES.-Data include U. 8. Government bonds and notes. Detail may not add to totals because of rounding.

Source: Treasury Department and Board of Governors of the Federal Reserve System.

III. INTERNATIONAL MONETARY FUND

Through its various facilities and resources, the Fund during the period under review has continued to promote international monetary cooperation and to encourage the movement toward a fully multilateral and non-discriminatory system of trade and payments. In general, progress in this direction has been maintained throughout 1955 and during the current period, despite the persistence of unfavorable factors in a number of member countries. During the fiscal year ended April 30, 1956, members of the Fund Staff visited 42 countries for purposes of consultation, technical assistance, or the exchange of views and information. Since the beginning of Fund operations, exchange transactions have amounted to the equivalent of over $1.2 billion. Aggregate currency repurchases of $985 million have enabled the Fund to maintain a high degree of liquidity and to adhere to its policy of protecting the revolving character of its resources.

These figures do not include foreign long-term investment in affiliated enterprises and private securities in the United States; they do include foreign holdings of U. S. Government bonds and notes.