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 You are in: Under Secretary for Public Diplomacy and Public Affairs > Bureau of Public Affairs > Bureau of Public Affairs: Office of the Historian > Foreign Relations of the United States > Nixon-Ford Administrations > Volume III
Foreign Relations, 1969-1976, Volume III, Foreign Economic Policy, 1969-1972; International Monetary Policy, 1969-1972
Released by the Office of the Historian
Documents 109-129

International Monetary Policy, 1969-1972

109. National Security Study Memorandum 7/1/

Washington, January 21, 1969.

/1/Source: National Archives, RG 59, S/S Files: Lot 80 D 212, NSSM 7. Secret. NSSM 7 established what became known as the Volcker Group after its Chairman, Under Secretary of the Treasury for Monetary Affairs Paul A. Volcker. The members were Volcker, Fred Bergsten, Dewey Daane, Henrik Houthakker, and Nathaniel Samuels. The Volcker Group was the successor to the Deming Group in the Johnson administration, chaired by then Under Secretary of the Treasury for Monetary Affairs, Frederick L. Deming. From 1969 to 1974 various U.S. Government, foreign government, IMF, and academic papers were distributed, in several numbered series, to members of the Group for their consideration, often at scheduled meetings. A set of these papers is in the Washington National Records Center, Department of the Treasury, Volcker Group Masters: FRC 56 86 30. A duplicate set of Volcker Group papers, bound into folders and indexed, is ibid., Office of the Assistant Secretary for International Affairs Central Files: FRC 56 86 24, The World/l/555 Volcker Group 1969. The papers were most often distributed under cover of a memorandum from George H. Willis, Deputy to the Assistant Secretary of the Treasury for International Affairs. Willis attended Volcker Group meetings and many international meetings on international monetary issues, such as G-10 and C-20 Deputies meetings. Spiral notebooks with his handwritten notes from some of these meetings are ibid., Deputy to the Assistant Secretary for International Affairs: FRC 56 83 26, Willis Notes.

The Secretary of State
The Secretary of the Treasury
Chairman of Council of Economic Advisers
Chairman of the Federal Reserve Board

U.S. International Monetary Policy

The President has directed the creation of a permanent Working Group to make recommendations on U. S. international monetary policy to the NSC and to implement policy decisions. It will be chaired by the Under Secretary of the Treasury for Monetary Affairs and comprised of the Deputy Under Secretary of State for Economic Affairs, a member of the Council of Economic Advisers, a member of the NSC staff, and a member of the Board of Governors of the Federal Reserve System, and/or their alternates. As appropriate, the chairman of the Working Group may invite other agencies to send representatives to specific meetings.

The President has also directed the preparation by the Working Group of a paper on U. S. international monetary policy for early consideration by the National Security Council./2/ It should consider our policy alternatives with regard to the U.S. balance of payments, the functioning of the international monetary system, and contingency plans for response to potential currency crises such as a franc devaluation and/or a British resort to a freely flexible exchange rate for the pound.

/2/Drafts of this paper are ibid., Volcker Group Masters: FRC 56 86 30. The drafts were circulated to members of the Group by C. Fred Bergsten, VG/LIM/69-11, on February 5, and by Hendrik Houthakker, VG/LIM/69-26, on February 27. No final text was found and the subject was apparently taken off the NSC agenda; see Document 16.

The paper should be forwarded to the NSC Review Group by February 15, 1969.

Henry A. Kissinger


110. Editorial Note 

In the late 1960s and early 1970s, U.S. policymakers gave advanced thought to the nature of the U.S. response to international monetary crises and the need to restructure the international monetary system. Papers on these matters looked at such issues as currency devaluations and appreciations, suspending the dollar's convertibility to gold, and changing the official price of gold, all policy issues that, if their consideration became public knowledge, could lead to intense, destabilizing speculation in foreign exchange and commodity markets. Papers on such issues, therefore, were usually classified and received very limited distribution.

Records pertaining to anticipatory, long-term international monetary planning during the Nixon administration in the Washington National Records Center, Department of the Treasury, Deputy to the Assistant Secretary for International Affairs: FRC 56 83 26, Contingency Planning 1965-1973. (This also contains documents on planning for currency crises during the Johnson administration.) Included are papers on possible foreign exchange crises in 1969 and 1973, a possible float of the pound, and an "excessive" devaluation of the French franc. In 1972 concern centered on a possible breakdown in 1973 of the December 1971 Smithsonian Agreement on exchange rate realignment. The sole contingency planning paper regarding the U.S. Negotiating Position on Gold is printed as Document 153.

Several "contingency" papers prepared in late 1970 and early 1971 out of concern with the continuing balance-of-payments deficit and as the foreign exchange markets heated up in May 1971 are in the Washington National Records Center, Department of the Treasury, Files of Under Secretary Volcker: FRC 56 79 15, 1971 Contingency Planning Papers. These papers, dating from November 23, 1970, to May 9, 1971, anticipate the suspension of the dollar's convertibility to gold announced as a part of President Nixon's New Economic Policy on August 15, 1971.

During the Nixon administration much of the early work on contingency planning was done in the Volcker Group and many of the documents are ibid., Volcker Group Masters: FRC 56 86 30. Volcker Group documents from the Spring and Summer of 1971 focus on such issues as limited exchange rate flexibility, and none of the documents from that time presage the 10 percent import surcharge and suspension of the convertibility of the dollar to gold the President announced on August 15, 1971.


111. Volcker Group Paper/1/


Washington, undated.

/1/Source: Washington National Records Center, Department of the Treasury, Volcker Group Masters: FRC 56 86 30, VG/LIM/1-VG/LIM/30. Confidential; Limdis. A January 30 draft indicates the paper was drafted by Willis. (Ibid., Deputy Assistant Secretary of the Treasury for International Affairs, Contingency Planning 1965-1973: FRC 56 83 26) Two other papers, VG/LIM/69-3 ("U.S.-U.K. Arrangements for Joint Contingency Planning," dated January 31) and VG/LIM/69-4 ("Possibilities for Dealing with Situation Created by 'Aggressive' Exchange Rate Action by the French," dated January 31), are attached. The three papers were to be discussed at the Volcker Group's February 3 meeting. No record of the discussion was found. 


This subject is discussed in this memorandum under these headings:

1) Activation of Special Drawing Rights
2) Gold Price Problems
3) Interchangeability of Dollars, Gold and Other Reserve Assets
4) Exchange Rate Policies and Principles--Fixed Parity or Limited Flexibility

Activation of Special Drawing Rights.--The U.S. looks forward to an early activation of the Special Drawing Rights Plan. Mr. Schweitzer has indicated that it might even be possible to consider activation at the September Annual Meeting of the Bank and Fund. He believes, however, that a Ministerial Meeting of the Group of Ten would probably have to take place, possibly at the Annual Meeting itself. Presumably such a Ministerial Meeting would include the French, even though they might not be participants in the SDR scheme.

Any such timetable would probably mean that the Deputies of the Group of Ten would need to begin work on the problem of activation fairly soon in order to recommend a course of action to the Ministers. We might make a tentative suggestion to Mr. Ossola that he convene the Deputies to begin this work either at the February session of the OECD or on the occasion of the next meetings in Europe in the spring.

The following points are suggested for further exploration in the Volcker Group as to the U.S. position and posture on this problem.

Amount of Reserve Creation.--It has been suggested that the United States would like to see reserves created in the amount of $3 to $4 billion a year, amounting to a 4 or 5 percent annual increase in global reserves. It is not clear whether this target would be the initial asking price, for SDRs alone, or whether it would be adjusted downward (or upward) in the event of a continuing addition to (or subtraction from) world reserves through deficits (or surpluses) of the reserve centers. One question to be examined is whether we should continue to envisage a constant annual amount of reserve creation during the five-year period, or a larger figure in the early years, followed by smaller figures in the later years of the initial five-year period.

U.S. Balance of Payments and European Attitudes.--The question arises as to whether the Europeans will be prepared to move to an early activation if the U.S. resumes a substantial deficit on official settlements account in 1969 and in ensuing years. The sources of reserve creation can become complex, and more than $2 billion was apparently added to world reserves outside the United States in 1968, despite an official settlements surplus of $1.6 billion in the U.S. In order to prepare our position on activation, it will be necessary to make a projection of world reserve creation for five years in the absence of any activation. This projection will depend in part on a corresponding projection of the U.S. balance of payments position during the period. Are we to assume no change in official dollar holdings during the next five years, or an upward trend in these holdings at a moderate figure?

2) Gold Price Problems.--While an early activation of the SDRs would help to set at rest speculation for an increase in the official price of gold, we cannot be sure that an aggressive devaluation by the French would not bring this problem to the center of the stage. Minister Schiller's continued references to a "realignment of currencies" might also envisage a change in the official monetary price of gold, and hence references to it continue to keep up the hopes of speculators.

The Schiller realignment problem might become serious if the Germans and other Europeans were to delay activation of the SDR and give the French support for a rise in the official gold price. We hope that this technique will not be adopted, and Schiller indicated last November that he was in favor of activation of the Special Drawing Rights. But it seems possible that he is seeking a general realignment of currencies to facilitate and cover a Deutschemark revaluation, and it is reported that he has expressed the view that the dollar is overvalued.

An aggressive French devaluation, which carried with it at least some depreciation of the pound sterling and other European currencies, could present a problem to the U.S. in choosing its future gold and exchange policy. This would be especially true if Germany, Italy, and Japan, for example, were to follow the French with some depreciation. Presumably these strong currencies would move only if the French depreciated by such a large percentage that they would be fearful of the impact on their trade. However, if by any chance there were such a general depreciation by the major countries, the United States would seem to face a decision on these basic alternatives:

a) Elimination of full convertibility and aggressive negotiations with other countries on mutually acceptable exchange rates for all major currencies in terms of the dollar. Such an aggressive negotiation might have to be backed up by threats to make illegal transactions in dollars at any other than a mutually agreed exchange rate.

b) The adoption of a general system of export subsidies and import taxes to offset foreign depreciation or even gain some advantage for U.S. exports in terms of some countries.

c) Depreciation of the dollar in terms of gold and other currencies, which would imply a rise in the official monetary price of gold.

3) Interchangeability of Dollars, Gold and Other Reserve Assets.--Assuming that the problem of the gold/dollar relationship is not brought to a head by some monetary crisis, as mentioned in the preceding section, there is a more fundamental question of the long-term U.S. policy with respect to convertibility of dollars into gold. Various approaches have been suggested which have the effect of limiting the potential strain of convertibility. One of these is the freezing in some way of foreign dollar balances. One is the reserve settlements account of Mr. E.M. Bernstein, which is an advanced method of eliminating convertibility that would present very difficult if not impossible negotiating problems. The third is a continuation of the rather informal way in which convertibility has been to some extent limited through central bank cooperation, the re-channeling of reserves into the international money market, through commercial banks, and other ways of holding down the growth in official dollar reserves.

The fourth approach is the suggestion for a dollar bloc and a gold bloc, with a flexible exchange link between the two.

These various proposals may be judged against the long history of monetary evolution. The convertibility of money into a metallic asset has been steadily restricted until it no longer exists domestically in most advanced countries. For a number of years convertibility into gold has been limited to international transactions. Last year, the two-tier system took a further step, and eliminated the convertibility of dollars into gold at a fixed price for foreign private holders of dollars.

What remains is the convertibility link for foreign monetary authorities. It is this link, and the possible loss of gold associated with it, that provides the major remaining impetus to international adjustment arising out of the balance of payments. But this link also threatens the stability of the monetary system, by permitting a run on the U.S. gold reserve on the part of foreign central banks.

Perhaps one of the most important long-term problems facing the U.S. is how to move out of this commitment in a graceful manner without causing undue disturbance to the monetary system and with a fair measure of international approbation, at some time in the future. It is not yet clear whether this can be done, and a breaking of the link may have to come in the context of some crisis and a threatened run on the dollar.

One possibility, over time, is that the nations of the world come to accept Special Drawing Rights in lieu of gold when they convert dollars into other reserves. Such preference for SDRs over gold may be a long time in coming. The preference of many monetary authorities for gold would be to some extent weakened if it became clear that the commodity gold price could dip below the official price of $35 per ounce.

A partial approach to the problem of reducing our vulnerability to convertibility would be the freezing of dollar balances in some form. Most experts believe, however, that this would not be acceptable to foreign countries without some kind of commitment to the effect that the U.S. would no longer have the flexibility of settling its deficit initially with dollar liabilities instead of reserve assets. There is a feeling in many quarters that it would be dangerous for the U.S. to give up the more favorable bargaining position which it now has, when it can pay out dollars initially and then discuss with foreign monetary authorities the various techniques for handling these dollars if the central bank does not want to hold them in its reserves. The reason for this feeling is that, with the U.S. unable to create new reserves in this form, the European countries might use too harshly their veto over the creation of Special Drawing Rights so that the growth in reserves that would be permitted might fall heavily short of the amounts needed to prevent a steadily tightening shortage of world reserves.

The same considerations apply to the Bernstein plan, which makes no allowance for the role of the U.S. as a continuing reserve center with the potential power to create additional reserves in the form of dollar liabilities. Under that plan, there would be no increase in dollar liabilities held as reserves.

The U.S. still has to develop a clear position as to its long-range objective with respect to the maintenance of convertibility and the interchangeability of dollars and gold.

4) Exchange Rate Policies and Principle--Fixed Parity or Limited Flexibility.--This subject has attracted especial attention during the past year.

Particularly among academic economists, it has been argued that the system of fixed exchange rates has come to place too much pressure on deficit countries to conform to rates of growth and rates of costs and price inflation in the rest of the world. It is argued that, because the pressure to conform is markedly stronger in deficit than in surplus countries, the latter have an exaggerated weight in determining the rate of growth of aggregate demand in the world as a whole, and, consequently, the rate of economic progress.

Against this, the practitioners of the fixed exchange rate system argue the uncertainties for trade and investment under a system of limited flexibility. However, perhaps more important is their fear that limited exchange flexibility would reduce the resistance of governments to inflationary pressure. Many central banks feel that the public and the government can be to some extent aroused to the danger of inflation through the necessity to protect reserves and maintain an established exchange rate.

The November meeting of the Ministers of the Group of Ten in Germany marked perhaps the first occasion on which the finger was clearly pointed at a surplus country by Ministers of other major countries, with a strong implication that an appreciation of the exchange rate was desirable on international grounds. True, the Ministerial Meeting in a sense symbolized this pressure, because the Germans acted in fact just before the Ministerial Meeting. They found a substitute for exchange rate appreciation, as a compromise measure within the German government. This was the border tax adjustment. It is generally believed that an important reason for using this technique instead of exchange rate appreciation was the common agricultural policy in the Common Market, and the effect of a German appreciation on the German budget in the form of additional subsidies to German farmers. These problems were avoided by eliminating the affected agricultural commodities from the proposed adjustment.

Some brief comments on the particular techniques of limited exchange flexibility are included in Attachment A./2/

/2/Not printed. The paper explored six options: 1) maintenance of the present Bretton Woods system of fixed exchange rates, subject to adjustment for fundamental disequilibrium; 2) use of border taxes to facilitate adjustment in trade accounts, while maintaining fixed exchange rates; 3) adoption of crawling pegs on a mandatory or discretionary basis; 4) adoption of wider margins, 2 percent or less to 5 percent or more; 5) combination of 3 and 4 above; and 6) a gold bloc and a dollar bloc with a flexible exchange link.

Both the British devaluation of November 1967 and the more recent German corrective border taxes have brought to the fore an additional consideration. In both cases supplementary measures appeared to be necessary affecting domestic demand in order to avoid quick dissipation of the adjustment effects of the action taken.

This calls to mind that any form of international adjustment in the trade and service accounts tends to cut down profit margins in surplus countries and to reduce real income in deficit countries. Both can be resisted by those affected. Also, deficit countries need to shift resources from non-competitive to internationally competitive activity; the reverse movement is needed in surplus countries. There may very well be important differences among countries in the ease of shiftability of their resources. (Compare the U.K. and Japan.) One possible hypothesis is that shiftability is low where there is a) strong resistance to a reduction in real income on the part of the working population, and b) where a relatively small proportion of resources is engaged in internationally competitive activities as against non-competitive production for the internal market.

These two experiences do suggest that it may be easy to over-estimate the effect of limited exchange flexibility in permitting countries to follow more diverse policies with respect to rates of growth and rates of inflation of costs and prices. The further unfolding of the German experience under the border tax arrangements may be instructive in this respect.

It has been suggested that limited exchange flexibility might not make a very large contribution to changing the U.S. trade and current account position. If this were to be the case, the principal effect might be to ease somewhat the pressure on deficit countries abroad, which have smaller economies with a larger segment of total production devoted to foreign trade.

It has also been suggested that limited exchange rate flexibility might have significance for the U.S. in other ways than through the effect on our current account deficit. Conceivably, such flexibility might in fact worsen our current account deficit if it resulted in a gradual depreciation of other currencies as a whole against the dollar. One suggestion is that the adoption of these limited flexibility techniques might be useful because it might permit public attention to be focused on the exchange rate rather than on balance of payments and reserve figures, as at present.


112. Telegram From the Department of State to Selected Posts/1/

Washington, January 31, 1969, 0115Z.

/1/Source: National Archives, RG 59, Central Files 1967-69, FN 10 IMF. Limited Official Use. Drafted by Thomas O. Enders (E/IMA) and L.P. Pascoe (Treasury), cleared at Treasury by Volcker and Willis and at the IMF by Dale, and approved by Enders. Sent to all posts except Bathurst, Bujumbura, Gaborone, Kigali, Maseru, Mbabane, and Port Louis.

15720. Subject: Special Drawing Rights.

1. New Administration reaffirms U.S. interest in the Special Drawing Rights Amendment to International Monetary Fund./2/ You should make this clear to government and central bank officials.

/2/In Fall 1968 the United States had joined in supporting creation of Special Drawing Rights (SDRs) by the IMF as a new source of international liquidity. See Foreign Relations, 1964-1968, vol. VIII, Document 193. A first allocation of $9.5 billion equivalent of SDRs over a 3-year period was approved at the 1969 Annual Meeting of the IMF at Washington in September 1969. See footnote 5, Document 140.

2. As of now 34 countries with a little over 50 percent of the voting power in the Fund have ratified the Proposed Amendment, as against 67 countries and 80 percent of the voting power required for Amendment to enter into force. Only 13 countries representing 41.5 percent of the total quotas have deposited with Fund instruments of participation indicating their ability to assume responsibilities of participant. SDR facility can be activated only when countries representing 75 percent of Fund's quotas have completed this as well as preceding step.

3. Administration believes it is important that requisite number of countries complete both of above steps as soon as possible--our goal is end of first quarter--so that discussion and decision on activation can follow promptly.

4. For Bonn, Brussels, The Hague, Rome, Luxembourg, Vienna, Stockholm, Kuwait, Jidda: In discussions with host country officials, you should avoid mention of U.S. desire for early decision on activation of SDR facility.

5. For Bern, Paris, Pretoria: Use above information, but presumption here is that would be unwise to make specific approach to government or central bank officials.



113. Memorandum From the Deputy to the Assistant Secretary of the Treasury for International Affairs (Willis) to the Under Secretary of the Treasury for Monetary Affairs (Volcker)/1/

Washington, February 6, 1969.

/1/Source: Washington National Records Center, Department of the Treasury, Deputy to the Assistant Secretary for International Affairs: FRC 56 83 26, Contingency Planning 1965-1973, Sensitive Documents 1-4/69. Confidential; Limdis. Sent through Assistant Secretary Petty. Copies were sent to Daane at the Federal Reserve, Dale at the IMF, and a number of others in Treasury. The memorandum is marked "For information."

Note on Justification for SDR Activation

The overall preliminary impression that I have from our useful round of talks with Ossola and van Lennep/2/ is that we have a fair chance to get an activation of SDR somewhere in the range of $1 to $2 billion by sometime in the fourth quarter in 1969. I am left somewhat uncertain as to what kind of performance on our balance of payments figures would have to be shown to achieve this. On the whole I don't believe that the amount of activation will vary too much if we show a better performance, but activation could be deferred if our results are too bad.

/2/Ossola and Van Lennep met with Treasury Secretary Kennedy, Volcker, and Willis at 3 p.m. on February 5. At 4 p.m. they met in Volcker's office with Volcker, Federal Reserve Governor Daane, and Willis. Memoranda of these conversations are ibid., Secretary's Memos/Correspondence: FRC 56 74 7, Memcons 1969.

The main result of van Lennep's effort to find a role for WP-3 in the activation process will probably be that he himself will have to be consulted by Schweitzer, and will have a somewhat stronger voice in determining the amount and timing under Schweitzer's proposal. On the whole this influence will probably be exerted to delay the activation somewhat and hold the amount down to the range that van Lennep considers desirable. On the other hand, his endorsement may be of some value in influencing the Dutch position favorably and possibly that of some other countries, although the latter should not be exaggerated. The key factors remain the attitudes of Schiller, Colombo, Carli, Blessing, Emminger, and Ossola. Schoellhorn of Germany, the Adviser to Schiller, is also important.

After September 1969, van Lennep will no longer be a representative of the Dutch Government, so his personal influence will be increasingly limited to the role of WP-3 and OECD in general./3/

/3/Van Lennep was slated to become Secretary General of the OECD in September. At the time of the February 5 conversations in Washington he was a senior Finance Ministry official in the Netherlands Government and Chairman of the OECD's WP-3 that studied balance-of-payments adjustment needs and policies.

We are working on a paper to build up the argumentation for a large activation figure in 1969-70. I believe it is important to base our argumentation on the two legs. The first is the fundamental justification which has been built into the SDR plan and is now accepted by most of the Europeans. This is that SDR creation is required to meet the secular need for growth in reserves. This should provide a basic minimum figure every year of something like at least 3-4 percent of reserves.

The second justification would be a temporary one, that of providing reserves to cover the losses of reserves in recent years through gold sales, and to replace reserves cancelled by repayment of short- and medium-term credit. My worry is that van Lennep will try to over-emphasize this second reason. Throughout the negotiations, van Lennep and McKay of the Netherlands Bank have had a strong tendency to favor this second approach and to reject or play down the first justification. I think this is dangerous for us, because it leads to the conclusion that reserves are created only when there is clearly evidence of serious disinflation in the world, as a kind of cyclical interjection of purchasing power on a fine tuning basis in the world's economy. We struggled a long time to get away from this view and to build up the need for a secular trend of growth in world reserves.

I would strongly urge that we maintain the primary emphasis on the first justification and not allow van Lennep and his concern with the adjustment process to push us too far into the second philosophy.


114. Telegram From the Embassy in France to the Department of State/1/

Paris, February 9, 1969, 1222Z.

/1/Source: National Archives, Nixon Presidential Materials, NSC Files, Country Files--Europe, Box 674, France, Volume I 1/20-4/14/69. Confidential; Exdis.

1904. For Treasury for Secretary Kennedy and Petty from Volcker. Full day of frank discussion in London raises a few questions on which guidance would be appreciated for subsequent contact in Paris./2/ 

/2/Volcker traveled to Europe in February for introductory calls on Ministry of Finance and Central Bank officials following his assumption of duties as Under Secretary of the Treasury for Monetary Affairs and U.S. G-10 Deputy.

1) Chancellor expressed great firmness on sterling parity even in face of conceivable franc move within "justifiable" range should March labor negotiations in France result in large cost increases./3/ French move not felt to be present contingency. However, Chancellor recognizes "speculative" pressures at any time could require new credit to support sterling parity. I responded this raises very difficult question, with continentals apparently negative and US not in position to assist unilaterally, if at all. At same time, we agreed on extreme hazards of "float," both in terms of international monetary stability and internal British position. Question of US help in funding UK debt not raised.

/3/In February 1969 Roy Jenkins was Chancellor of the Exchequer.

2) This discussion against background of Chancellor's restrained optimism on British balance of payments. He is looking to erratic but noticeable improvement in trade figures, taking one month with another. While no figure put forth, current account surplus for year clearly significantly smaller than previous official estimates (as outside observers already predict); nonetheless felt to be moving slowly in right direction. There is clear recognition of narrow range of tolerance for short-falls in trade results.

3) Much more concern here over resumption of speculative move into Mark prior to autumn German election than any other contingency, but they feel this danger should not materialize before summer. Consequently, hope period of calm will last for some months, but in view of tenuous nature of situation extremely reluctant to engage in any multilateral discussion that could incite market rumors of imminent changes in parities. Discussions on SDR activation felt possible, but little else in "reform" area practical in view of speculative dangers.

4) Chancellor firm on position vis-a-vis South Africa. (Bank of England, on other hand, would like compromise.) I took line that while I had not examined question in detail, September 9-10 position appeared sound./4/ Said we are perfectly willing to talk to South Africa without acrimony to clear up interpretation and ambiguities through Washington contact.

/4/See Document 145.

5) Chancellor also inquired about visit to you, saying reluctant to leave before March-April budget decisions. Early visit barely possible, but would otherwise have to wait until after budget. Told him you glad see him any time, but no urgency on your part. Frank Figgures, Treasury external man, wants to come promptly in any event.

6) I propose sticking to (A) line that further credit extremely difficult and dependent on continental participation, while not actually shutting door in case of speculative flurry, (B) urging key importance of control of UK domestic situation, (C) above position on South Africa. Also, with your approval, will confirm you would be glad to see him as early as the latter part of week of Feb 17, if he feels able to come--otherwise wait until April. Will call you Tuesday afternoon to discuss further./5/

/5/No record of a call on Tuesday, February 11, was found.



115. Talking Paper Prepared in the Department of the Treasury/1/

VG/LIM/69-17 (Corr.)

Washington, February 18, 1969.

/1/Source: Washington National Records Center, Department of the Treasury, Volcker Group Masters: FRC 56 86 30, VG/LIM/1-VG/LIM/30. Confidential; Limdis. An attached cover note from Willis to members of the Volcker Group, dated February 19, indicates that page 1 was a corrected copy. A February 17 draft, labeled "2nd draft," indicates Willis prepared it. (Ibid., Deputy to the Assistant Secretary for International Affairs: FRC 56 83 26, Current Problems and Contingency Planning 11/68-4/69) President Nixon traveled to Belgium, the United Kingdom, the Federal Republic of Germany, Italy, and France February 23-March 2. See Document 116 for a Talking Paper prepared for the President's use in France.

February-March 1969

International Monetary System
(for use in United Kingdom, Germany, Belgium, Italy;
see separate talking paper for France)

1. We are both interested in improving the international monetary system.

2. In this context, it is essential to bring inflation under control in the United States. This is a major goal of my Administration.

3. We have been looking in a preliminary way at a number of proposals to see whether there are responsible improvements that can be made in the system. On most of these we have no final view. I would be glad to hear what is in your mind.

4. We have decided that an early and substantial activation of the Special Drawing Rights would be extremely useful. This would be a demonstration to the exchange and gold markets that we "mean business", as we say in the United States. A hesitant approach in timing or magnitude would encourage those who profit from uncertainty. It would leave individual monetary authorities under political pressure to build up their gold reserves to an unnecessary and undesirable degree. I want to make clear that we do not regard activation of Special Drawing Rights as absolving us from the fiscal and monetary discipline needed to improve our balance of payments position.

5. (If the discussion proceeds to more specific questions as to where and how many Special Drawing Rights we would like to see created, the following might be added.) I understand that during the negotiations, illustrative figures were mentioned for activation at the rate of about $1.5-$2 billion a year for the initial period of five years. My advisers say it would be the part of wisdom to begin with a substantially higher figure, particularly in 1969 and 1970. Ideally we would like to see activation before August, to be announced at the end of September at the IMF Annual Meeting.

6. There is a second problem that concerns us. The process of international adjustment of balances of payments has become too dependent upon selective controls and restraints. We would like to stop the drift in this direction and search for other methods of reducing excessive and persistent deficits and surpluses.

7. We owe it to ourselves to explore every possible new proposal for improving the system, including those under discussion in academic circles. We must be careful to do so without upsetting confidence.

8. Whatever changes we might encourage in the monetary system, none will avoid periodic crises affecting individual currencies. As a result, we will continue to need intensive financial cooperation.

8a. (Only for Germany and Italy) We appreciate the efforts made by your country to channel excessive inflows of capital out of reserves and into international monetary and capital markets, as well as your participation in financial assistance for countries facing exchange difficulties.

9. I share the view that, unless we have reached a closer meeting of minds, it would be dangerous to undertake a formal international monetary conference.

10. Finally, you should know that I am not going to seek an answer to these problems through a change in the monetary price of gold./2/ I do not see the need or reason for such action.

/2/On February 20 Chairman of the Council of Economic Advisers McCracken sent President Nixon a memorandum regarding De Gaulle and the price of gold. McCracken saw no need for the President to respond directly to an anticipated request, "on a metaphysical level," to increase the price of gold but to emphasize "our interest in a better monetary system, and our concern about growing controls over trade and capital movements." McCracken saw no advantage to increasing the gold price but concluded: "It is equally important not to allow the French, or anyone else, to see any signs of flexibility on gold except in the context of our general position. If we are to be cooperative on gold, there must be a total package that makes it worth our while." (National Archives, Nixon Presidential Materials, NSC Files, President's Trip Files, Box 442, Feb-March 69 Trip to Europe) On February 22 Arthur Burns also sent the President a memorandum on gold. Burns wrote: "you have been correctly advised to show no interest on our part in an increase in the price of gold. . . . By all means let us try to keep the official price as it is, but let us also watch carefully the costs that we may incur through such a policy. And whatever else we may do, let us not develop any romantic ideas about a fluctuating exchange rate: there is too much history that tells us that a fluctuating exchange rate, besides causing a serious shrinkage of trade, is also apt to give rise to international political turmoil." (Ibid.) 

Final Note

11. If any interest is expressed in pursuing bilateral discussions with the United States, you might say that Secretary Kennedy would be glad to meet with representatives of the country concerned in Washington.


116. Talking Paper Prepared in the Department of the Treasury/1/


Washington, February 19, 1969.

/1/Source: Washington National Records Center, Department of the Treasury, Volcker Group Masters: FRC 56 86 30, VG/LIM/1-VG/LIM/30. Confidential; Limdis. Presidents Nixon and de Gaulle met in Paris on February 28, March 1, and March 2. International monetary issues reportedly were discussed in an expanded meeting on March 1, but no record of that meeting was found. Regarding their final meeting on March 2, see Document 7.

February-March 1969


International Monetary System


Conversations on monetary reform with the French pose special dangers:

1. The basic French attitude towards the international monetary system is fundamentally different from ours. Their persistent underlying objective has been (a) a substantial increase in the price of gold, large amounts of which are in French hoards, and (b) the imposition of very stern discipline on the U.S. through severe limitations on the future of the dollar as a reserve currency. Recent hints to U.S. officials of French views on reform maintain these two elements.

2. Certain elements in the French regime especially eager to see a rise in the official price of gold will deliberately stir speculation to their advantage. Great care must be taken in any allusions to monetary "reform", as the French will tend to associate "reform" with an increase in the official gold price. If at all possible, attempts may be made to imply your endorsement of such an approach in any Communique. Leaks to the French press designed to promote this objective following your talks are likely unless the U.S. team is alert with denials.

3. We believe there is some danger that the French might undertake at some time in the future, possibly this year, a large unilateral devaluation of the franc aimed at disruption of the monetary system and achieving a higher price of gold. They may hint at the desirability of some package deal with the United States to avoid such disruptive action on their part. Any such proposal should be approached very cautiously, even though some elements might be acceptable.

4. In general, it is important to refer details for future discussion, while preserving our subsequent bargaining position by maintaining a firm position on gold price.

Talking Paper

First Alternative Approach (assuming that President de Gaulle invites you to speak first on the international monetary system)

1. We are both interested in improving the international monetary system.

2. In this context, it is essential to bring inflation under control in the United States. This is a major goal of my Administration.

3. We have been looking in a preliminary way at a number of proposals to see whether there are responsible improvements that can be made in the system. On most of these we have no final view. I would be glad to hear what is in your mind.

4. We have decided that an early and substantial activation of the Special Drawing Rights would be extremely useful. We hope that France will look again at this instrument, and become a participant./2/

/2/Telegram 27105 to posts in franc zone countries, February 20, notified the Embassies that the IMF had been informed that, at a forthcoming Yaounde meeting, France would tell franc zone Finance Ministers that ratification of SDRs would be considered an unfriendly act. Without revealing knowledge of this information, the Embassies were requested to report any information they could develop about French actions and host country reactions. (National Archives, RG 59, Central Files 1967-69, FN 10 IMF)

5. But there is a second problem that concerns us. The process of international adjustment of balances of payments has become too dependent upon selective controls and restraints. We would like to stop the drift in this direction and search for other methods of reducing excessive and persistent deficits and surpluses.

6. We owe it to ourselves to explore every possible new proposal for improving the system, including those under discussion in academic circles. We must be careful to do so without upsetting confidence./3/

/3/On February 19 Willis circulated to members of the Volcker Group VG/LIM/69-20, which contained revised language for this paragraph because of concerns the French press might take the original out of context and conclude the United States was prepared to explore proposals for a change in the price of monetary gold. The suggested, "safer" version reads as follows: "6. We owe it to ourselves to explore a variety of new proposals for improving the system, including those under discussion in academic circles. We must be careful to do so without upsetting confidence, or casting any doubts on the monetary price of gold." (Washington National Records Center, Department of the Treasury, Volcker Group Masters: FRC 56 86 30, VG/LIM/1-VG/LIM/30)

7. Whatever changes we might encourage in the monetary system, none will avoid periodic crises affecting individual currencies. As a result, we will continue to need intensive financial cooperation. Drastic unilateral action by any country with major financial responsibilities poses grave dangers for all.

8. I share the view that, unless we have reached a closer meeting of minds, it would be dangerous to undertake a formal international monetary conference.

9. Finally, you should know that I am not going to seek an answer to these problems through a change in the monetary price of gold. I do not see the need or reason for such action. I am well aware that this has been a difference of view between our two countries. But I am convinced that this would be disruptive and wrong.

Final Note

10. If any interest is expressed by General de Gaulle in pursuing bilateral discussions with the United States, you might say that Secretary Kennedy would be glad to meet with his representative in Washington.

Second Alternative (if General de Gaulle takes the initiative to spell out the French view on international monetary reform)

11. We are quite willing to discuss with the French, as with other countries, responsible improvements in the international monetary system. (If it appears appropriate to do so, you may wish to say that Secretary Kennedy would be glad to see Minister Ortoli if he wishes to come to Washington.)

12. You could then draw on the material set forth under the first alternative above to the extent that seems appropriate. Several points at least should be made clear to the General:

(a) It is important that General de Gaulle understand our position with respect to the monetary price of gold.

(b) Any discussions of international monetary reform ought to be carried on in a quiet manner to avoid stirring up exchange speculation.

(c) If the General drops a hint or issues a warning concerning the possibility of a unilateral decision to devalue the franc, it might be helpful to indicate that we should all try to avoid drastic unilateral actions that would be disruptive to the monetary system.


117. Telegram From the Department of State to the Mission to the OECD/1/

Washington, February 19, 1969, 0222Z.

/1/Source: National Archives, RG 59, Central Files 1967-69, FN 17. Unclassified. Drafted by Enders (E/IMA), cleared by Rogers (EUR/RPE) and Widman (Treasury), and approved by Enders. Repeated to Bonn, Brussels, The Hague, London, and Luxembourg.

26395. 1. White House has decided after all to release text of informal remarks at Treasury February 14./2/

/2/At Secretary Kennedy's request, President Nixon visited the Department of the Treasury on February 14 and addressed employees at 3:25 p.m. Telegram 25595 to Paris (repeated to other EC capitals), February 18, informed addressees that the President's reference to international monetary reform had come up in an informal "pep talk" to Treasury staff and the President had no specific proposal in mind. No text of the President's remarks had been released by the White House. (Ibid.) The full text of the President's remarks, dated for release by the White House on February 14, was distributed to the Volcker Group as VG/INFO/69-10 on February 18. According to that text, early in his remarks the President said: "I am going to speak very carefully now, because I realize that when a Secretary of the Treasury, let alone a President of the United States, says something about tax programs or international monetary matters that it can have the effect of changing the price of gold or, for that matter, changing the price of stocks and so forth and so on." (Washington National Records Center, Department of the Treasury, Volcker Group Masters: FRC 56 86 30, VG/INFO/69-1-VG/INFO/69-22) The President's remarks are printed in full in Public Papers of the Presidents of the United States: Richard M. Nixon, 1969, pp. 101-105.

2. Following are President's remarks on international monetary affairs: "There are indications that the problems affecting the international monetary system are very possibly going to be a subject of not only major discussion on the immediate trip but also they are going to be a subject of major concern in this next year and perhaps within the next two years.

Now is the time to examine our international monetary system to see where its strengths are, where its weaknesses are and then to provide the leadership, leadership which is responsible, not dictatorial, leadership which looks to the good judgment and the good advice that we can get from our friends abroad who will have a similar view about the necessity for a sound international monetary system. . . . Here in this department, I see you here at a time that is very exciting, very exciting because whether it is in the field of tax reform, whether it is in the field of international monetary policies, there is a need for new approaches."

3. Missions should use above on if asked basis.



118. Editorial Note

The Volcker Group met on March 11, 1969, to discuss international monetary issues and international monetary reform. Three papers had been distributed by Willis to members of the Group on March 10 and 11 as a basis for discussion at the meeting.

The first paper was entitled "Strategy for Improving International Monetary Arrangements" (VG/LIM/60-37, dated March 10). An earlier draft, dated March 6, indicates it was drafted by Willis. The transmittal memorandum on the March 10 paper notes that it was Part I of a Strategy paper and had been revised based on suggestions made during a Volcker Group meeting on March 8.

The second paper was Part II, the unilateral approach of the "Strategy for Improving International Monetary Arrangements." The undated paper (VG/LIM/69-38) contains handwritten notations, presumably by Willis, many of which appear to relate to the views of Daane, Bergsten, Solomon, and others expressed during the March 11 Volcker Group meeting. A March 6 memorandum from Willis to T. Page Nelson indicates that Volcker had suggested reducing the alternatives for improving international monetary arrangements to two: A. move in the direction of the Bergsten approach of a dollar, and possibly other currency, blocs; and B. the Bernstein approach that would put the dollar on the same footing as other currencies. (Washington National Records Center, Department of the Treasury, Deputy to the Assistant Secretary for International Affairs: FRC 56 83 26, Contingency Planning 1965-1973, Current Problems and Contingency Planning 11/68-4/69) A revised version of Part II, attributed to Nelson, was distributed to the Volcker Group on March 17 (VG/LIM/69-47).

The third paper was Part III of the "Strategy for Improving International Monetary Arrangements," subtitled "Procedure in the Event of Exchange Crises."

The three papers, drafts, and transmittal memoranda are in the Washington National Records Center, Department of the Treasury, Volcker Group Masters: FRC 56 86 30, VG/LIM/31-VG/LIM/50. Other copies of the papers are ibid., Deputy to the Assistant Secretary of the Treasury for International Affairs: FRC 56 83 26, Contingency Planning 1965-1973. VG/LIM/69-48, Document 119, is presumably a synthesis of these three papers.


119. Volcker Group Paper/1/


Washington, March 17, 1969.

/1/Source: Washington National Records Center, Department of the Treasury, Volcker Group Masters: FRC 56 86 30, VG/LIM/31-VG/LIM/50. Confidential; Limdis. The paper is marked "Treasury Draft." Another copy is ibid., Deputy to the Assistant Secretary for International Affairs: FRC 56 83 26, Contingency Planning 1965-1973. This paper was presumably the result of discussion at the March 11 Volcker Group meeting; see Document 118.


1. Unless there are some changes in the international monetary and payments system, cumulative strains could develop over the next few years that could result in increasingly serious disturbances in the framework of international monetary relationships. One aspect of this strain on the monetary system could be heavy reserve losses for the United States, through the conversion of dollars into gold by foreign monetary authorities. The balance of payments on the liquidity basis may well continue at $2-3 billion a year. A strong anti-inflation program, though absolutely necessary, may not be sufficient to shrink our liquidity deficit in a highly competitive world. This prospect would be underlined by a vigorous program of relaxing restraints on capital outflow, in a future situation of relative monetary ease. The present official settlements surplus results from heavy short-term borrowing by United States banks, which pulls money out of foreign official reserves. This is a factor related to credit stringency here, and may prove to be temporary. We may face attrition of our reserves, and periodic currency crises can add to our gold losses.

2. Our strategy therefore calls for either (a) negotiating substantial but evolutionary changes in present monetary arrangements, or (b) suspending the present type of gold convertibility and following this with an attempt to negotiate a new system, in which the United States would undertake a more limited and less exposed form of convertibility of the dollar. The second course, which would necessarily imply unilateral action by the United States, would involve an initial shock to other countries. The extent of the shock would vary with the circumstances preceding such a decision. The reaction abroad might be less nervous if the decision were made at the time of an exchange crisis and after large U.S. gold losses.

3. In our judgment, substantially more needs to be done in 1969 and 1970 to improve the monetary system than the European monetary authorities realize. Their present horizon is limited to a cautious activation of Special Drawing Rights in an amount of no more than $2 billion a year for five years. While we cannot of course expect negotiations on a more far-reaching package of improvements to be completed within a few months, we do believe that the United States needs to reach its own judgment before June 1969 as to whether there is a reasonable prospect of carrying on with our present responsibilities in an improved system./2/ That is, on the basis of soundings taken with officials of other major countries, we should decide by late spring whether or not we have a fighting chance to obtain European support for our program of improvements by stages in 1969-70. Aggressive negotiations, with high level support, would be essential to push such a campaign forward, should we decide to undertake it.

/2/The President met with his advisers to discuss international monetary issues on June 26; see Document 131.

4. The elements in the first approach are set forth briefly below:

a) An activation of Special Drawing Rights of $15-20 billion during 1969-73, beginning in September 1969, with a front-end load factor in 1969 and 1970. This is substantially more than the maximum amount of $10 billion in 1969-73 that has been mentioned in the past as an illustrative figure, and has been regarded by some observers as the European maximum. We would be prepared to compromise to some extent, but $10 billion would not be enough.

b) We would support a general increase in IMF quotas in 1970, but not at the expense of postponing SDR activation beyond 1969. We would not now join in putting pressure on Continental European creditor countries for a quota increase (which may be desired by the IMF staff, the developing countries, and the French, but resisted by the surplus countries).

c) We would seek an appreciation of the Deutschemark and either exchange appreciation or some substitute such as border tax adjustments from other surplus countries. We would accept, as part of such a program of exchange rate adjustment, a moderate but not excessive depreciation of the French franc.

d) We would determine by June of this year whether intensive consultations should begin with other leading countries on the proposals for limited exchange flexibility--moving parities or wider bands, or a combination of the two. We feel that these may be important to facilitate longer-term adjustment of imbalances, but have not taken a decision. At the present time the Europeans are negative, and it might take two years or more for their attitudes to thaw. What we have to determine this spring is whether we think they will thaw, and whether we want them to.

e) This program would be supplemented by a strong drive to achieve a more satisfactory NATO offset; and by the adoption of border tax adjustment techniques by the United States, without a change in the U.S. tax structure. The latter would be a substitute for exchange adjustments, which is not feasible for the United States so long as other currencies peg their exchange rates to the dollar.

f) In return for European cooperation in (a) to (e) above, the United States would undertake to relax controls on capital outflow only in accordance with progress on the anti-inflation front.

g) The United States would resist European pressure to agree in advance to convert enough dollars into gold in future years to prevent a rise in global dollar reserves. If absolutely necessary to reach an understanding with the Europeans, we might undertake to do so if dollar reserves were to reach the outside limit of some range that would allow considerable flexibility to cover the substantial swings in dollar holdings that can occur, as well as a reasonable growth in dollar holdings desired by some countries.

h) An increase in the official dollar price of gold would not be part of either approach. Our bargaining position hinges importantly on firm resistance to an increase in the official gold price.

5. The second approach would begin with unilateral United States action to remove the privilege of gold convertibility at the initiative of foreign monetary authorities. We could then allow some time to elapse to see how foreign countries reacted. Presumably many countries would continue to peg to the dollar and no basic change would take place. With others, reluctance to hold dollars might lead to appreciation of exchange rates, to floating rates for capital transactions, to direct measures cutting down the inflow of dollars or to the use of central banking techniques for rechanneling dollars into international money markets. In the political sense, the world might tend to split into a dollar area, comprising (a) those countries that were quite willing to accumulate dollars, and (b) countries, principally in Europe, that would prefer to hold down their dollar accumulations. In the light of developments, we would proceed with calm and unhurried negotiations looking toward all of the elements of paragraph 4 above, but with generally less emphasis on the speed of decisions. However, it would still be desirable to activate Special Drawing Rights in September 1969.

6. In the transitional phase, following the suspension of convertibility at foreign initiative, there could be some initial confusion in the exchange markets, until the policies of the major countries had been clarified. It has been suggested that some private and official holders of dollars might move into Swiss francs, Deutschemarks or other strong currencies. If this happened, the United States and these countries would have to consult to determine whether the United States would be willing to repurchase any of these dollars with gold or drawings on the IMF. If the United States did not wish to do so, the countries concerned might decide to appreciate their exchange rates or take other steps to hold down their dollar accumulations. All in all, during the transition period the United States might not wish to relax restraints on capital outflow or ease monetary policy, to avoid adding to the flow of dollars with which the stronger currency areas were coping.

7. The most difficult question under this second approach is whether the United States would go back to convertibility, and, if so, what type of convertibility the United States would be willing to resume. Presumably this would mean that the United States would pay out gold and/or Special Drawing Rights for dollars under some new convertibility principles. Presumably most of the present official dollar holdings would be exchanged for Special Drawing Rights or some special type of reserve asset, so that the United States would not be exposed to the risk of large-scale conversions. Establishing the new principles might require intensive monetary negotiations, which might take months or years. A specific United States position on the new type of convertibility has still to be formulated.

8. One reason for deciding on our basic strategy before June is to try to turn to our advantage any international consultations that may result from exchange crises affecting the French franc, the pound sterling or the Deutschemark. If we are agreed upon our objectives, we might be able to accelerate progress in the desired directions, since important decisions sometimes emerge in the heat of crises.

9. General Conclusions

a) Suspension of gold convertibility is not proposed now. Moral suasion would continue to restrain gold losses.

b) We propose taking some risks by negotiating hard to raise the European horizon on the monetary system. There is a risk that they will drag their feet on SDR activation, because they think we are too greedy and want too many SDRs to help finance a continuing deficit. There is a risk that some countries will ask for gold, fearing that we are heading toward a suspension. We believe these risks are justified, as we must see a chance to improve the system so as to:

(i) give the United States more flexibility for domestic and foreign policies,
(ii) halt the spread of selective restraints and restrictions.

c) We don't believe we should become locked in to the evolutionary approach for too long.

d) If it becomes clear that progress on evolutionary improvements is too halting, this year or next, we should resign ourselves to the need for suspension of convertibility and a resumption of negotiations with the Europeans from that different posture.


120. Telegram From the Embassy in Italy to the Department of State/1/

Rome, March 27, 1969, 1445Z. 

/1/Source: National Archives, RG 59, Central Files 1967-69, FN 10. Confidential; Limdis; Greenback.

1809. Pass Treasury for Petty.

1. Following is summary (cleared with Volcker) of conversation held March 26 by Volcker, Danne and Willis with Treasury Minister Colombo (including Treasury DirGen Nuvoloni and Treasury official Palumbo). Meeting took place at Chamber of Deputies where Colombo had to be on hand for vote of confidence./2/

/2/Volcker visited a number of European capitals to consult with officials there on revisions in the U.S. balance-of-payments program (see footnote 4, Document 8 and Document 14) and to take soundings on SDR activation, limited exchange rate flexibility, and other matters. Telegrams reporting on Volcker's conversations in Bern, Bonn, Brussels, The Hague, and Stockholm are in the National Archives, RG 59, Central Files 1967-69, FN 10.

2. Volcker asked about Italian timetable for ratifying SDRs. Colombo replied subject had been scheduled for discussion this very day in Chamber Committee but had to be postponed because of confidence vote issue. Hoped would be approved at next meeting of committee and then go to floor, with approval both Chamber and Senate as soon as possible before end of spring.

3. Volcker explained US thinking on SDR activation, stressing that while SDRs could not be looked upon as answer to all problems besetting monetary system, would be important contribution to stability if activation decision would be taken at September meeting IMF. If this to be achieved would be useful for leading countries to begin to discuss matter so as to reach consensus among themselves by say June, or at least before vacation period begins. Volcker also emphasized that while US by no means feels SDRs are method of solving US balance of payments problems, US does have need, over time, to increase its own reserves and SDR creation would help achieve this. In terms amount SDR creation, Volcker indicated had no specific number in mind, but argued average annual amount to be created should be significantly larger than two billion dollar figure that has been mentioned widely. This would show governments are willing to act boldly to combat tensions in monetary system and would provide needed liquidity to compensate for fact gold had not recently been flowing into monetary reserves and that much of recent liquidity creation has been crisis borne, e.g., credits extended to assist sterling and franc.

4. Colombo replied he shared belief that SDR creation, while not panacea, would have both psychological value in alleviating speculation and other strains and constituted innovation which gradually can bring about change in monetary system. In beginning Italy had shared view that achievement US balance of payments equilibrium should be precondition to activation, but at last year's IMF meeting Italy stated that SDR creation and re-establishment US B/P equilibrium should take place simultaneously. If US and other deficit countries were to achieve B/P equilibrium, without SDR creation, repercussions on world liquidity would be too drastic. Italy ready to begin talks among G-10 countries on activation, even in advance of completion of requisite number of ratifications, but question of amount, of whether creation should be on one-year or on multi-year basis and of how creation should be distributed over years must be carefully considered. There is a range of divergent views in Europe. Kind of magnitudes Volcker had alluded to could be discussed on way to achieving a compromise. By way of "friendly advice" Colombo urged that question of activation should not be pushed so hard and fast within G-10 as to create new obstacles to idea of activation, since there were countries in Europe that did not look at this question "with same objectivity as Italy."

5. Volcker emphasized that major problem in US was getting control of inflation and thereby placing US balance of payments on a healthy, long-term basis. This is intention of administration. Colombo said he shared this view, and did not wish to suggest US had any other alternative. He did want US to know that Italy is somewhat concerned about difficulties for its own B/P caused by lop-sided structure US payments. High world interest rates caused by tight money in US are attracting capital from Italy. On other hand, if US should re-establish B/P equilibrium too abruptly, this would have adverse effects on Italy's exports and trade position. These double dangers argued for gradualism in US action to achieve better balance.

6. Volcker described US thinking on proceeding soon to a limited relaxation of controls on capital exports, mentioning that liberalizing move in this direction would also help in stemming pressures for trade protectionism in US, which new administration determined to combat. Colombo replied that if such measures could be taken without substantial detrimental effect on US B/P and if thereby protectionist pressure in US could be resisted more successfully, Italy could have no reservations about such step.

7. Colombo asked Volcker to keep in mind Italian views on two matters (said would not raise question of flexible rates, et cetera, since Volcker would undoubtedly discuss this with Carli at meeting scheduled for afternoon). First he would like us to study Italian proposal of making available to LDCs, through IBRD and IDA, a contribution in dollars corresponding to given proportion of SDR allocations received by industrialized countries (mentioned as purely illustrative example that if Italy received $100 million equivalent SDR allocation, could agree set aside $10 million from its non-SDR reserves in favor LDCs)./3/ Colombo said did not have any preconceptions about how contribution should be determined, e.g., as straight proportion of SDR allocations or mixture of proportion allocations combined with factor taking account of balance of payments situation of donor country. Believe would be good idea study this proposal in G-10 forum. Secondly, Colombo wanted US to know that Italy interested in having its IMF quota increased. Italy knows Japan interested in increasing its quota. Italy believes its place should not be lower than seventh among IMF countries. It will ask for this and hopes US will support.

/3/The Italians took the lead in official international monetary circles in promoting the SDR-aid link. The Nixon administration was not opposed to the idea but did not want to weaken its priority for SDR activation by linking it to aid.

8. Volcker said, in principle, Italian idea of contribution to LDCs at time SDR creation could be studied, but he was fearful this would complicate question of proceeding with SDR activation. Just as Colombo had asked US not to press too hard on question of amount of SDR activation, Volcker wanted to ask Colombo not to press too hard on examination contribution to LDCs before activation question settled. On IMF quota matter, Volcker said US had not had chance think about this question, but we would proceed to examine it and look at as sympathetically as possible. Again, however, while this should be examined on its own merits, he did not want to burden activation question by tie to quota question.



121. Telegram From the Department of State to the Embassies in Belgium, the Netherlands, Italy, Sweden, and Switzerland/1/

Washington, April 12, 1969, 0127Z. 

/1/Source: National Archives, RG 59, Central Files 1967-69, FN 10 4/l/69. Confidential; Limdis; Greenback. Drafted by William Dale; cleared in Treasury by Widman and Willis (in draft), in the Federal Reserve by R. Wood, in the Council of Economic Advisers by Wonnacott (in substance), and in State by E. Heginbotham (E/IMA); and approved by Robert M. Beaudry (EUR/NSC-IG).

56540 1. During his recent discussions in Europe, Treasury Under Secretary Volcker indicated to key monetary officials (including Snoy and Ansiaux, Witteveen and Zijlstra, Wickmann and Joge, Stopper and Carli) that U.S. would be willing to explore bilaterally at technical level, problems involved in suggestions concerning limited increase in exchange rate flexibility./2/ Following proposal was put forward, in varying detail:

/2/Pursuant to discussions between Volcker and French Director of the Treasury Rene Larre, arrangements were also being made for consultations with the French on limited exchange rate flexibility. The talks would take place on the fringes of an April 24-25 meeting of the OECD's WP-3 that would provide cover for U.S. officials' travel to Paris, minimizing the possibility of press leaks. (Telegram 58690 to Paris, April 16; ibid.)

a. It is to be understood that U.S. Government has not as yet developed an official view on any of these suggestions, or on general question whether any formal or informal change is required in present exchange rate regime. At same time, interest in these ideas is sufficiently widespread so that we believe careful exploration of some of issues involved is desirable. Our interest at this stage is in elucidation, at technical staff level, of technical and policy issues that would be posed if any such changes were to be decided upon. Object would be to increase our understanding of issues involved, and to obtain some indication of tentative views of authorities of important countries, as input to reaching official U.S. views of these ideas.

b. We would be glad to engage in series bilateral technical talks on these questions, in great secrecy, if authorities these governments would find it useful. Have no wish to press if authorities are not interested. Same offer being made to all G-10 countries.

2. Our impression is that most if not all G-10 countries will wish to accept offer if they are satisfied talks will be adequately protected against leaks. Extraordinary care should be taken to limit knowledge of this offer to those with absolute need to know.

3. As means of implementing our proposal request addressee posts review foregoing with D'Haeze, De Strycker, Van Lennep and Kessler, [illegible], and Joge, Leutwiler and Ossola (Palumbo if Ossola thinks advisable) and indicate that if government wished pursue such studies, our feeling is useful way to conduct talks would be for one or two teams of U.S. Treasury and Fed technical personnel (one each) to visit host authorities in near future. We envisage discussions as being distinctly below level of Deputies or Alternate Deputies. U.S. technical people will be prepared for visit as early as week of April 21. We envisage talks would require about one full working day per country, though perhaps some leeway might be left for a little more. If at conclusion of this discussion discussants feel a second round would be useful, arrangements could be made for foreign discussants to visit Washington for this purpose at some time during May. We hope to finish any such bilateral technical talks before end of May.

5. As background material for discussion, we would suggest three IMF staff papers which host authorities (except Switzerland) should have, or which we prepared supply. These are DM/69/2, Fleming paper on wider margins; DM/69/4, Hirsch paper on sliding parities; and DM/69/10, Kuczynski paper describing various sliding parity proposals./3/ In addition, we would supply series of annotated questions on which we believe it would be useful to center discussion.

/3/DM/69/2 is a paper by J. Marcus Fleming entitled "Wider Margins of Exchange Rate Variation," January 8, circulated to members of the Volcker Group as VG/WG/69-8. DM/69/4, a paper by Fred Hirsch entitled "The Usefulness of Small Changes in Exchange Rates in the Case of Industrial Countries," January 9, was circulated as VG/WG/69-9. DM/69/10, a paper by Michael Kuczynski entitled "Proposals for Small and Perhaps Frequent Changes in Par Values," February 3, was circulated as VG/WG/69-20. (All in Washington National Records Center, Department of the Treasury, Volcker Group Masters: FRC 56 86 30, VG/WG/69-1-VG/WG/69-22) The VG/WG (later VG/WG I) series of Volcker Group papers pertains to the Working Group of the Volcker Group that worked on limited exchange rate flexibility. The WG papers were also circulated to members of the Volcker Group in the VG/INFO series. The DM series numbers were given to papers by the IMF staff.

6. If authorities are interested in proceeding on this basis, would appreciate indication of date or dates when could be ready for visit of U.S. technical personnel, and, if available, name(s) of host persons who would participate in discussion. Widman, Treasury, will coordinate schedule. (FYI. Would you see any disadvantages in having team visit four or five countries in sequence?)

For Rome: Re Ossola's views reported Korp-Willis letter April 3,/4/ Washington visit by BOI official suggested by Ossola could be in lieu of Rome visit by U.S. team or could follow team's European tour, at option of Italians. Inclusion in talks of a second Italian expert from BOI Foreign Exchange Dept. also optional with Italians.

/4/Ralph V. Korp, Treasury Attache at the Embassy in Rome. The April 3 letter was not found.



122. Memorandum of Conversation/1/

Washington, May 1, 1969, 10:45 a.m.

/1/Source: National Archives, RG 59, Central Files 1967-69, POL UK-US. Confidential; Nodis. Drafted by Bergsten. According to the President's Daily Diary, the meeting lasted from 10:37 to 11:25 a.m. (National Archives, Nixon Presidential Materials, White House Central Files, President's Daily Diary) The Diary does not record Ambassador Freeman and Bergsten as attendees, but does list John Harris, an aide to the Chancellor.

The President
Chancellor of the Exchequer, Roy H. Jenkins
Secretary of the Treasury, David M. Kennedy
British Ambassador, John Freeman
Chief of Protocol, Emil Mosbacher
Henry A. Kissinger
C. Fred Bergsten

The meeting took place on the terrace outside the President's office on a beautiful spring morning. The discussion was extremely cordial and freewheeling and was largely a get-acquainted session between the President and the Chancellor./2/ A UPI photo of the group appeared in the Washington Post on May 2.

/2/An April 30 memorandum from Secretary Kennedy to the President informed Nixon that the May 1 meeting with the Chancellor would be a courtesy call where no issues of substance would be raised. (Washington National Records Center, Department of the Treasury, Secretary's Memos/Correspondence: FRC 56 74 1, Memo to the President Jan-April 1969)

The President opened the discussion by commenting that recent developments in Europe made even more imperative the maintenance of a common ground between the U.S. and the UK. Our two countries will not always agree on specific issues but will generally fully understand each other's views. The President expressed the hope that the Chancellor and Secretary Kennedy would develop a close relationship with complete candor its hallmark. Given the latest French development (note: the departure of General de Gaulle),/3/ we can expect a period of uncertainty and potential instability for as long as three months. During this period, as well as into the future, the U.S. does not wish to be alone.

/3/Georges Pompidou gained a plurality in the first round of French elections on May 1 and was elected President in the second round on May 15.

Secretary Kennedy reported that he and the Chancellor had already developed such a relationship./4/ In addition, he would be talking with the Germans in the same way. Minister of Economics Schiller wants to visit the Secretary for a day or two in mid-May./5/

/4/Kennedy and Jenkins met at Camp David on April 28 and discussed prospective exchange rate changes, particularly the need for an appreciation of the German Mark, SDR activation, and South African gold. A memorandum of their conversation is ibid., Memcons 1969.

/5/Kennedy and Schiller met at Camp David June 1-2; see Document 128. Kennedy had met earlier with Economics Ministry State Secretary Johann Schoellhorn and Bundesbank Director Otmar Emminger on April 29. A memorandum of their conversation, which focused on exchange rates, is in the Washington National Records Center, Department of the Treasury, Secretary's Memos/Correspondence: FRC 56 74 1, Memcons 1969. On May 10 Secretary Kennedy informed President Nixon that the German Cabinet had decided not to revalue the Mark; see Document 126.

The Secretary reported that he and the Chancellor had discussed the prospects for German revaluation and the French currency problem. The Germans wanted company for their upward move but had not yet received any. The President asked whether the Italians were not strong enough to move, though he recognized their political problems. The Chancellor noted that Italy has a strong current account position, which would get even stronger if Germany revalued, but they face recurring capital flight which reflects their political uncertainties.

The Chancellor expressed the view that German revaluation was inevitable and, in that case, should be done sooner rather than later. The current problem is that the Germans are talking about it but taking no action. The President asked why Strauss is doing so much talking, to which Dr. Kissinger guessed that Strauss wants to delay the revaluation as long as possible and accomplish it at his own initiative.

The Chancellor noted that the Germans can talk without hurting themselves but that the talking hurts others, especially the French and the UK. He expressed the hope that Schiller would not say much publicly unless he was ready to do something. Dr. Kissinger noted that Schiller was not very strong. The Chancellor thought he was a clever man and in many ways not bad, but that he was the worst chairman he had ever seen.

The President then asked the Chancellor for his views on the French situation. Did the Chancellor think that it would change much post-de Gaulle or would the governing establishment simply carry on?

The Chancellor responded that the French bureaucracy was very strong and capable. It had held up the Fourth Republic and would continue to be effective. He was uncertain, however, of Couve's ability to make decisions during the interim period.

The President noted that one of our academic experts foresaw little change. Dr. Kissinger agreed that there would be little change if Pompidou was elected, but he was not sure of this outcome. If the Left decides to back the Center, the candidate of the Center (presumably Poher) could win. This could occur even if the Leftist ran second on the first ballot, with Poher running third. The Center would not be able to deliver its votes to the Left, but the reverse could occur. The Left might wish to support Poher in order to dilute the power of the Presidency and shift power back toward the Assembly.

The Chancellor thought this would represent a return to the Fourth Republic and Dr. Kissinger fully agreed. The Chancellor was not sure that the Left would support the Center, but Dr. Kissinger responded that the interest of the Left was to destroy a strong presidency in order to produce a fairly weak government. The Chancellor did not think the Communists would clearly opt for a centrist over Pompidou, but he admitted that they would like to see a weak government emerge. Dr. Kissinger agreed and thought this argued for the thesis he had just outlined. The Gaullists would not hold together without de Gaulle, but if Pompidou wins there will be little change in the short run.

The President then asked about French economic policy. Secretary Kennedy thought that it would improve because General de Gaulle's interference had been a major problem. Mr. Bergsten noted that the outcome of the wage negotiations was one key element in the situation and a key question was whether the new government could hold them down. The Chancellor and Secretary Kennedy agreed that these were key questions for the longer term but thought they were not decisive for the short run viability of the franc.

The Chancellor asked Secretary Kennedy whether he assumed there would be no French devaluation until their elections. The Secretary replied that the timing was very tight. Germany must move soon in view of their election and perhaps that is why Schiller wants to come earlier than originally planned.

The Chancellor noted that Strauss would be visiting him at the same time and that the U.S. and UK should therefore keep in close touch. If Strauss says the Germans will move but not until the French election, there will be massive speculation between mid-May and mid-June. The Chancellor thought it would be hard for Germany to revalue sufficiently and there was no real pressure on them since they were taking in money. The Secretary noted that such a scenario would bring sterling under pressure, given the British reserve position. The Chancellor noted that sterling had done all right today (May 1) despite flows into Germany, but he reiterated his concern about the Germans' talking and not acting.

The President noted that this could be an explosive year in Europe politically. We do not know who the players will be by the end of the year. We must all therefore remain flexible in our policies while at the same time retaining a force for stability. The Chancellor affirmed that there was now a new political situation in Europe.

The President remarked that it was his understanding that Prime Minister Wilson now wishes to delay his visit to Washington. The Chancellor made it clear that the Prime Minister wishes to come when he can, and the President added that it might be better for the visit to follow the French election. The Chancellor agreed.

The President asked whether the Prime Minister would be able to keep the unions in check with his proposed new legislation. The Chancellor replied that the legislation was the right thing to do and was necessary. He thought they could get it through by the end of July although it will be a battle. (The President commented that such a proposal was "gutsy.")

Ambassador Freeman commented that public opinion including labor was with the government on this issue. He cited a recent poll showing 60 percent support for the government's proposal. In reply to the President's question of why there was support, the Ambassador commented that the rank and file union members were fed up with their leadership, with the inconvenience of periodic work stoppages, and that they were beginning to understand economic problems. The Chancellor added that the great worry of union members was unofficial strikes. The UK does not lose as many man-days of work per year as does the U.S., but their strikes were less orderly. This particularly incensed the wives of the union members. One advantage of the British balance of payments problem is the development of widespread appreciation of their economic difficulties; the monthly trade figures are widely followed and the people are impatient for progress. Nevertheless, there are significant problems within the union leadership and the Parliamentary Labor Party, which includes 80 to 90 of their 330 MPs.

Dr. Kissinger noted that these back benchers would not vote against the government. The Chancellor said that some would although they would hope others would keep them from voting themselves out of power. The risk is that they would miscalculate on the offsetting votes.

The President said he was interested in discussing the question because popular attitudes reveal something about the character of a country. It was encouraging to him that the British people were undaunted. Governments could do things if their people were willing to take bitter medicine. Many experts said that the UK was finished, but he had said on his last telethon during the campaign that no one should under estimate the resilience of Britain, which asserts itself at unexpected times.

The President then commented that we might be at a watershed in history. With de Gaulle gone we have a great opportunity and need to develop new areas of strength. The character of people, including the U.S. were critical in the making of difficult decisions. Any one nation can affect others significantly by standing up for what is right.

The Chancellor thought that Europe [Britain] might now achieve entry into the EEC, although it still might take a year or so. Progress toward this goal would have a great impact on UK morale. Morale was not low at the present time, however, despite the balance of payments, because the economy was in good shape otherwise.

The President commented that we should be thinking of new approaches on several fronts when the situation is as fluid as this. He would take a gingerly approach to improving the international monetary system since we can't talk too much without exacerbating our problems. He did hope, however, that we could do some imaginative thinking in this period and not just react to crises. We need to decide on what kind of Atlantic Community we wish. It could not develop as originally conceived and the passing of de Gaulle would not make it an easy task since there would still be Gaullists in all countries. It was his hope, however, that we could make some attacks on these problems. If not, more fragmentation would set in due to lack of leadership and the world situation could become quite difficult. He admitted that this discussion might sound esoteric, but he thought strongly that we should not miss such an historical opportunity.

The Chancellor agreed and noted that we must keep monetary questions in their proper place, within the broad political framework. He said that Britain would try to find its way through to its relationship with Europe. The failure to do so to date had meant a total loss of momentum for the European movement. Dr. Kissinger noted that Poher would favor UK entry and that even Pompidou was less hostile than the General. He saw this as the major change likely in French policy.

The President added that the real question is the Atlantic world that would result. The Chancellor replied that the UK wants to enter Europe to strengthen the Atlantic Community. Ambassador Freeman noted that this was precisely the source of de Gaulle's opposition to UK entry, which must now be probed.

The President said that he had reminded the State Department of their argument that our problems with Europe would disappear if de Gaulle were gone, and had asked for a paper on the subject. We needed to do some hard planning and thinking. A real opportunity existed given a new French government, the German election, and the Italian problem. We cannot seize the opportunity with the old stereotyped approaches, however. A new breakthrough is required. A key element is for us to remain flexible. The President expressed an interest in any new approaches, which the UK might suggest, not just in the financial field. If we develop no new approaches but just react to developments, we might see Europe fragment--this tendency was the virus of the day.

Secretary Kennedy stated that he hoped to explore quietly with French officials what the French could do on the exchange rate before their election. He would avoid any intrusion in the political scene. The President asked whether such an approach could be private, and Dr. Kissinger asked whether it would be conducted at the expert level. The Chancellor thought an approach could be kept private. Secretary Kennedy said he would do it via Under Secretary Volcker. Secretary Kennedy encouraged the British to make an effort to find out as well, perhaps through Governor O'Brien, who is also close to the French. A discussion ensued on how best to approach the French.

The President concluded with a reminder that we should not let the movement of history pass us by while important situations change. The Chancellor agreed and Dr. Kissinger concluded that the situation had become unfrozen.


123. Action Memorandum From the President's Assistant for National Security Affairs (Kissinger) to President Nixon/1/

Washington, May 2, 1969.

/1/Source: National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 289, Treasury, Volume 1. Secret. A stamped notation on the memorandum reads: "The President has seen," and the President wrote: "Excellent analysis."

U.S. Policy Toward the Present European Currency Situation

The attached memorandum from Secretary Kennedy summarizes the European monetary situation and suggests a possible course of US action.

Speculation on a revaluation of the German mark has increased tremendously in the past two days, in response to statements by Strauss openly raising the possibility of an early German move "in a period of calm, and in company with other countries"./2/ Renewed speculation on a French devaluation has resulted from the exit of de Gaulle plus the expected DM revaluation. The main danger, however, is that both events--which are probably inevitable--will not occur soon enough to prevent a massive run on the British pound, which could force the UK to abandon its fixed exchange rate, devalue by a sizable amount, and/or apply import restrictions.

/2/Strauss' statements were not further identified.

The direct economic effect on the US of any or all of these changes would be small and certainly manageable. A major problem for us would arise only if a forced British move disrupted confidence in the functioning of the entire international monetary system, which could lead to efforts by foreign monetary authorities to convert their dollar reserves into US gold. A failure of the three main foreign governments to respond responsively to the situation could, in the extreme, generate widespread financial chaos with deleterious political and economic effects on the US. (The economic effect would be much more serious in all other countries than in the US. However, the plain fact is that only the US will take responsibility for the functioning of the entire system.)

Secretary Kennedy proposes that we encourage the Germans and French to change their exchange rates as soon as possible and by appropriate amounts. The amount cited in the Treasury memorandum--a move of 10 percent by each--is about right. It would be desirable for the Germans to revalue by a bit more, but it would be undesirable for the French to devalue by very much more.

Secretary Kennedy's memorandum recommends only that we try to energize the French and Germans to reach bilateral agreement on the questions, and asks for approval to indicate your support for the approach.

I will not dispute the economic analysis involved in making this recommendation. The basic issue is how close Western Europe is to a financial panic. But any move toward French devaluation and German revaluation will be extremely difficult politically for both countries.

In my judgment Strauss would not have publicly mentioned revaluation (before discussing it with the Chancellor) if he were willing to move quickly. Furthermore, it is highly doubtful that France will devalue one or two weeks after de Gaulle unless forced to do so by a financial panic. A basic question is who would make the decision: Couve would not reverse his mentor and Poher's position is clearly not sufficiently strong. And neither Germany nor France will act in order to save Britain. The threat to Britain and ultimately the U. S. could thus develop as outlined above. (I have checked my political judgments with the State Department, which agrees.)

If massive speculation becomes a virtual certainty, it may become necessary for us to weigh in with an effort to convince the Germans and/or French to move in order to avoid the major risk already cited, despite the political risks of so doing. Such an effort might require your personal involvement. Our main pressure would probably have to be applied to Germany, and the offset negotiations which began yesterday would provide an opportunity to give them something in return./3/ (NSDM 12 has already directed that we indicate to Germany our willingness to broaden our offset negotiations in future years to include overall monetary cooperation, and you asked to review this year's negotiations for the possibility of doing so sooner. The timing may prove to be extremely fortuitous.)

/3/See Document 18.

But such a U.S. effort would have highly sensitive foreign policy implications--since we would in essence be trying to get other countries to change their exchange rates--and the politics of any move to do so should be considered extremely carefully before you decide to pursue it. Until it is clear that we face a major crisis, we should keep our profile as low as possible, since any major U.S. involvement--no matter what its purpose--would almost inevitably be used by the French left as an example of U.S. involvement in France's internal affairs.


/4/There is no indication the President approved or disapproved these recommendations.

1. That you authorize a low-key effort to encourage the French and Germans to get together to work out a solution, without, however, trying to tell them what that solution should be or using your name explicitly.

2. That you direct Secretary Kennedy, that if your low-key approach fails, he must come back to you for explicit approval before taking further steps.

3. That you direct him to develop a contingency plan for use if a crisis were to develop and further U. S. action were needed, and assure him of your personal intervention if and when needed.



Memorandum From Secretary of the Treasury Kennedy to President Nixon/5/

Washington, May 1, 1969.

/5/Secret. Volcker, Bergsten, Samuels, Houthakker, Daane, and Cooper discussed the substance of this memorandum on May 1. (Note to Willis; Washington National Records Center, Department of the Treasury, Deputy to the Assistant Secretary for International Affairs: FRC 56 83 26, Contingency Planning, Current Problems and Contingency Planning 4-10/69)

The unsettling effects of the French election on the exchange markets were greatly aggravated yesterday by statements of German Finance Minister Strauss openly raising the possibility of an early German revaluation. While the May Day holiday on the Continent is providing limited respite today, it now seems likely that speculation will gather force until the anticipated revaluation (and French devaluation) takes place. The main danger is that, unless the impasse is broken shortly, there may be a forced devaluation of the British pound, posing a clear risk of a series of other devaluations at the expense of the dollar and exchange stability generally.

This potential crisis comes at a time when intensive conversations with the British and Germans give us a clear sense of their own objectives and possible actions./6/ On the other hand, contact with the French Government has been circumscribed by their transition and the difficulty of identifying those currently most influential in this area.

/6/See Document 122 for a record of talks with British officials. Otmar Emminger and Johann Schoellhorn, accompanied by Ambassador Pauls, met with Secretary Kennedy and Under Secretary Volcker on April 19. A memorandum of their conversation is in the Washington National Records Center, Department of the Treasury, Secretary's Memos/Correspondence: FRC 56 74 7, Memcons 1969. Kennedy met with Emminger and Schoellhorn again on April 29; see footnote 5, Document 122.

We are initiating contacts with all the principal parties against the background of the following objectives:

1. The German mark should be revalued by 10 percent. The French franc should be devalued by 10 percent. The Netherlands guilder and Swiss franc should be revalued (by lesser amounts), if possible, recognizing this probably cannot be achieved before German action.

2. The French-German action should take place as early as this weekend, or as soon as possible thereafter.

3. The British pound should hold at its present parity.

Our contacts would be directed at energizing the main parties at interest--the French and Germans--to reach a bilateral accommodation on these lines.

The main stumbling blocks are (1) German insistence heretofore that their revaluation must not be in isolation, (2) French paralysis during the transition, and (3) the unwillingness of the Dutch or Swiss to "make company" for the Germans at this time. As part of our effort to meet German resistance, we would indicate to them our willingness to accept a relatively "soft" military offset, along the lines of their present proposal. We have also initiated other contacts with finance ministers and central banks. However, it would be desirable if we could indicate your personal knowledge and support of this approach. While we hope it will not be necessary, we also hope we could count on your personal intervention, if required at a critical point.

This approach has been discussed with and is supported by the State Department, the Federal Reserve, and the Council of Economic Advisers.

David M. Kennedy


124. Action Memorandum From the President's Assistant for National Security Affairs (Kissinger) to President Nixon/1/

Washington, May 7, 1969.

/1/Source: National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 309, Balance of Payments. Secret. Drafted by Bergsten.

The Present International Monetary Situation


Attached at Tab A is a memorandum from Paul McCracken which reviews the present status of the international currency difficulties and makes three recommendations:/2/

/2/McCracken's May 5 memorandum is not printed. McCracken began by referring to a May 2 meeting at the Treasury Department that "brought out the political difficulties in getting France to devalue, a solution about which we had no doubts in any case." McCracken noted that the action Kennedy had proposed on May 1 (see the attachment to Document 123) was therefore ruled out for the time being. In a May 6 memorandum to Kissinger, Bergsten characterized some of McCracken's analysis as inadequate and some of his recommendations as extremely dangerous politically, and recommended Kissinger sign the May 7 memorandum to the President. (National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 309, Balance of Payments)

1. That we inform the United Kingdom, which is the main potential crisis point, that:

(a) We hope they will continue to defend their present exchange rate.
(b) We are opposed to their adopting any new import restrictions.
(c) We are willing to help them manage a floating exchange rate for the pound, if they are forced to abandon their present parity, presumably by making available to them enough money to moderate any decline in its value.

2. That we make no statements supporting the present structure of exchange rates (except for the gold-dollar price) or minimizing the seriousness of the situation.

3. That we come out more openly for the "crawling peg", a basic reform of the international monetary system which would permit gradual adjustment of exchange rates and hence help avoid future crises.

Present Situation and Analysis

Dr. McCracken's memorandum is contradictory on one of the crucial elements of the situation. It states at one point that "there are no indications" that Germany will revalue unilaterally, and at another that they "will probably change their view if more money flows in". I share the former judgment; the present monetary system puts very little real pressure on surplus countries to act short of intense political pressure from the rest of the world. In the case of Germany, this means in practice that the US would have to involve itself deeply--probably including your personal intervention--to change their minds.

Second, the memorandum indicates only by omission that the US is well shielded from any direct effects of the present European currency problems. Our exceedingly tight monetary policy is keeping the dollar extremely strong in the exchange markets. Thus our only purely national worry is the possibility that a real financial panic will ensue and lead foreign monetary authorities to lose their nerve and seek to convert their dollars into US gold. We might then be forced to suspend the convertibility of the dollar into gold, which would risk major foreign policy problems as outlined in my memo last Friday./3/

/3/Document 123.

Third, I fully endorse Dr. McCracken's conclusion that the UK is the major potential crisis point in the system and therefore agree with his recommendation that we express our hope that the UK will hold its present exchange rate.

However, I do not agree with his recommendation that we tell the UK that we would prefer a floating exchange rate for the pound to new import restrictions, if they are forced to do something. Even on purely economic grounds, it is not clear that our balance of payments would be hurt more by restrictions than by a change in the exchange rate of sterling. More important, however, a UK decision to float would represent a major break with the present monetary system and is much more likely than new restrictions to induce other countries to follow. Thus, a decision to float is much more likely to touch off a panic. It is true that import restrictions would only buy time for the UK, but there is good economic reason to believe that they are finally on the right track and that a bit more time will permit them to hold their present exchange rate.

Finally, I agree that we need to move specifically toward reforming the monetary system so that such crises will not recur continuously and that the "crawling peg" is a desirable element in such reform. There are two problems with his recommendation that we come out more openly for such an approach, however.

One problem is that we should be very cautious about openly advocating the "crawling peg" at the present time. Any US statement on exchange rates would increase market nervousness and run counter to Dr. McCracken's other recommendation that we avoid making any statements on the present situation. (We should, however, be alert to opportunities afforded by the present situation to increase support for our reform ideas.)

The other problem is that you have not yet received the options paper on monetary issues which you asked the Treasury to provide a month ago. As a result, you have not had an opportunity to consider the subject systematically and we have no agreed policy. We need to move on this quickly before a real crisis overtakes us.


/4/The President approved all four recommendations and wrote "OK" at the end of the memorandum.

1. That we inform the UK, in low key, of our hope that they can maintain their present exchange rate.

2. That we go no further in our policy recommendations to the UK.

3. That we make no statements at all concerning the present European currency situation, or, for the moment, our specific proposals for international monetary reform.

4. That you convene an early meeting to consider overall US international monetary policy./5/ I recommend that such a meeting include the Secretary of Treasury, the Secretary of State, the Chairman of the Federal Reserve Board, the Chairman of the Council of Economic Advisers, and myself.

/5/Such a meeting convened on June 26; see Document 131.


125. Editorial Note

As currency uncertainties emerged in early May 1969, due to the imminent change in the French Government and renewed speculation that the German Mark would be revalued and the British pound devalued or allowed to float, policymakers began to consider options for actions by the U.S. Government.

A May 7 paper entitled "Policy Considerations in Current Monetary Situation" had a short-term focus related to the current crisis, while a May 10 draft memorandum to the President on the Secretary of the Treasury's letterhead entitled "U.S. Policy Options With Respect to International Monetary Evolution" looked to the longer term evolution over the next decade. Both papers are in the Washington National Records Center, Department of the Treasury, Deputy to the Assistant Secretary for International Affairs: FRC 56 83 26, Contingency Planning 1965-1973, Current Problems and Contingency Planning 4-10/69. There is no indication that the draft memorandum went forward to the President, but many of the ideas in the memorandum are included in the paper prepared for the meeting with the President on June 26; see Tab B to Document 131.

 On May 10 Bergsten sent Kissinger a memorandum that reads as follows: "Following is the memorandum which you requested, which Dick Cooper (who flew down for the day) and I wrote today. Volcker would not commit himself to prepare an options paper so we proceeded fully on our own. The Volcker Group will meet tomorrow night." (National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 309, Balance of Payments) The paper Bergsten referred to has not been found, but attached to another copy of his May 10 memorandum is a May 2 memorandum from Cooper to Kissinger on "Implications of Gold Suspension and a Floating Pound." In a May 13 memorandum to Kissinger on "The International Monetary Situation," Bergsten indicates that his and Cooper's May 10 paper set out options for the current crisis. (Both ibid., Agency Files, Box 215, Council of Economic Advisers--Secret) No record of a May 11 Volcker Group meeting has been found.


126. Memorandum From Secretary of the Treasury Kennedy to President Nixon/1/

Washington, May 10, 1969.

/1/Source: National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 309, Balance of Payments. Confidential.

 The decision of the German Cabinet not to revalue the mark will leave an air of uncertainty over international financial developments for some time. The immediate outlook for the exchange markets is highly uncertain, and turns on the credibility of the German position. This will depend, in large part, on what other tax and financial measures the Germans are prepared to take. The Germans have been extremely vague on this, and no decisions are expected until the middle of next week, at the earliest.

While the German position on the mark parity is unsatisfactory, I see no alternative but to accept it as an accomplished fact for the time being, and to work as best we can within that framework in the days ahead./2/ Revaluation has become a straight party issue, with Strauss leading the CDU opposition. While some reports indicate the Chancellor himself has some sympathy for revaluation, in the last analysis there seems little chance that he would reverse the decision, unless or until external conditions and pressures change. In practice, this would require an even more severe crisis in the exchange markets or changes in parity by other countries so the Germans have "company."

/2/According to a May 13 memorandum from Bergsten to Kissinger, the United States sought to influence the German Cabinet's decision. Bergsten wrote: "the only feedback I have gotten from our intervention on Friday night [May 9] is that it came too late and hence was of no help. I do not know whether this means that the decision had really been made before the Cabinet meeting, as reported in some press stories, or that Ambassador Pauls failed to convey it to Kissinger promptly enough. This report came from Bundesbank Director Emminger, who with the rest of the Bundesbank firmly supported Schiller's effort to get revaluation, to Federal Reserve Board Governor Daane at the Sunday meeting of central bankers in Basel." (Ibid., Agency Files, Box 215, Council of Economic Advisers)

Our interest for the short run lies in (1) promoting a reversal of the recent speculation into marks, and (2) building protection against the possibility that new speculative pressures will converge on sterling. To help achieve the former, in press statements and contacts we will cast no doubt on the ability of the Germans to sustain their position, accept it as a fact, and make plain the necessity for supporting measures to repel speculation.

The second objective is supported by the agreement now reached under pressure from events and the U.S., between the U.K. and the IMF in negotiations on a $1 billion credit package. This will be leaked to the press in London in time for the Monday papers.

The question of additional credit facilities for the British, by the U.S. and other countries, will also arise, especially if speculative pressures on sterling are not reversed. The Federal Reserve, in contacts this weekend at the regular Basle meeting of central bankers, will test sentiment on this difficult issue. With respect to "recycling" recent German gains, the question of a German government guarantee may arise.

If a calmer market atmosphere prevails in the days and weeks ahead, some orderly realignment of exchange rate parities still may be possible this summer. This would be a prelude to our efforts to achieve more fundamental reforms. But it is clear we will continue to face formidable uncertainties until the politically-charged impasse on exchange rates is resolved.

David M. Kennedy


127. Editorial Note

On May 27, 1969, George Willis circulated a summary of a series of consultations on exchange rates that had been taking place since March 25. The summary was sent to members of the Volcker Group and the Working Group as VG/WG/69-65. (Washington National Records Center, Department of the Treasury, Volcker Group Masters: FRC 56 86 30, VG/WG/69-61-VG/WG/69-77) Technical level consultations were held in London March 25-26. (VG/WG/69-36, April 1) Further consultations were held in Europe in late April, U.K. officials traveled to Washington for a second round of talks on May 13 and 14 (VG/WG/69-73, June 6), and talks were held in Stockholm, Amsterdam, and Rome during the week of April 21. (VG/WG/69-59, May 12) Governor Daane, Willis, and Embassy officers in Paris had consultations with the French on April 24 (VG/WG/69-53, May 7), and Donald C. Templeman of Treasury and Wood had consultations in Zurich and Brussels on April 29 and 30. (VG/WG/69-77, May 22) (All ibid., VG/WG/69-21-VG/WG/69-39; VG/WG/69-40-VG/WG/69-60; and VG/WG/69-61-VG/WG/69-77)

The May 27 summary of these consultations included the following points:

"Prevailing attitude toward greater exchange-rate flexibility: negative, especially if allowance is made for the veil of courtesy and friendliness which lead many to soften their criticisms and doubts; in the second round with the British they wanted to be sure the U.S. was not misled by their willingness to engage in constructive discussion and made clear their attitude was basically negative.

"Role of the dollar: other side invariably raised and we could see no practical alternative to continuation of the present system, i.e., the dollar pegged to gold at the $35 price, and other currencies 'flexing' around the dollar.

"Discrete changes: no one disagreed and some insisted that large 'one time' parity changes could not be ruled out.

"Discipline: widespread concern that greater exchange-rate flexibility would weaken 'disciplinary' pressures on deficit countries.

"Wider margins: no strong support and considerable opposition, especially from EC countries that seemed unanimous in regarding wider margins as posing more of a problem for their agricultural system (CAP) than would a moving-parity system."

The full report on the limited exchange rate flexibility consultations, including additional ones later in the year, was sent under cover of a letter from Under Secretary Volcker to his European, Canadian, and Japanese counterparts on December 12, and circulated to members of the Volcker Group and the Working Group as VG/WG/69-112 on December 23. (Ibid., VG/WG/69-99-VG/WG/69-112)


128. Telegram From the Department of State to the Embassy in Germany/1/

Washington, June 3, 1969, 2316Z.


/1/Source: National Archives, RG 59, Central Files 1967-69, FN 10. Confidential; Priority; Limdis; Greenback. Drafted by Widman (Treasury); cleared by Volcker and Willis (Treasury), Heginbotham (E/OMA), and Kornblum (EUR/GER); and approved by Quinn (S/S-O)

89501. Subject: Kennedy-Schiller Talks on Monetary Cooperation. Pass to Deputy Under Secretary Samuels. Although no attempt was made to reach any firm agreements on controversial questions, we are convinced that Secretary Kennedy's meeting with Schiller was extremely useful. Schiller was apparently pleased with his reception, and enjoyed the atmosphere of Camp David. He also seems to have "hit if off well" with Secretary Kennedy./2/

/2/Secretary Kennedy and Under Secretary Volcker, accompanied by Willis and Widman, met with Minister Schiller and Johann Schoellhorn at Camp David June 1-2. A memorandum of conversation, dated June 13, is in the Washington National Records Center, Department of the Treasury, Secretary's Memos/Correspondence: FRC 56 74 7, Memo of Conversation (1) 1969.

Separate cable being sent covering references to military offset negotiations/3/ and memcon will be forthcoming at later date. Following highlights may be useful to Under Secretary Samuels for scheduled meetings with Blessing and with Schiller if he returns in time.

/3/Not found.

Talks concentrated on improvement of international monetary system. Schiller would like to see three major actions--(1) activation of SDR, (2) general realignment of exchange rates, and (3) increased rate flexibility. While his preference would be for simultaneous action on these measures, he recognized this unrealistic. Schoellhorn indicated belief that activation could be made acceptable in Germany provided there was public acknowledgement that other steps to strengthen monetary system were contemplated. In drafting a brief communique, key point for Schiller was that "establishment of the special drawing rights facility in the IMF will be one important step in the orderly evolution of that system." Germans were particularly concerned to get proper translation of word "one." Word "establishment" is also interpreted by Schiller to include both ratification and activation.

No effort made during talks to reach agreement on amount of activation. Volcker explained rationale for figures used in document which U.S. has submitted to G-10 Deputies/4/ and urged Germans to focus on arithmetic. Schiller did not press case for only small amount, or for delay, but neither did he respond positively to U.S. arguments.

/4/The paper, entitled "The Need for Reserve Creation in the Next Five Years," dated May 28, was distributed in Washington to members of the Volcker Group and Working Group II as VG/WG II/69-8 on May 29. (Washington National Records Center, Department of the Treasury, Volcker Group Masters: FRC 56 86 30) Earlier drafts, beginning on May 12 and including one dated May 26 revised by Volcker, are ibid., VG/WG II/69-1-VG/WG II, 69-13. Volcker Group Working Group II was concerned with reserve asset creation, particularly SDR activation. Several different scenarios were examined in the papers, and in one, where all additions to reserves were to be SDRs, the annual SDR requirement was put at $4.5 billion. According to the memorandum of conversation of the June 1-2 meeting (see footnote 2 above), Schoellhorn found the higher estimates "shocking."

Schiller is still looking for sizable family of fellow travelers for proposed currency realignment, but ideas not concrete. Mentioned U.K. (where he seems to be pushing for further small devaluation), plus France, Japan, Switzerland, and Austria. Made vague references to "special position of United States" but gave no indication that he was advocating change in price of gold.

Schiller also appeared to be thinking that it might be possible to reach agreement on some form of crawling peg system after realignment. He recognized there is still need for extensive technical studies on flexibility proposals, and Kennedy urged concentration on getting decision on activation at end-September IMF meeting. Timetable would necessitate ratification by 67 countries by end-June, or early July, and completion of preliminary steps before summer vacations. Schiller indicated that he was prepared to work on matter through July, but not available in August or September, the months of active political campaigning. Schiller hoped no G-10 Ministerial meeting would be needed, but expressed concern at Italian delay in ratification. Schiller considered activation of SDR could be expected "this year."

It was agreed that timing of rate realignment question dependent on further education of German opposition and in any case not likely before German election except in dramatic international crisis. Technical studies on flexibility should proceed though no technicians yet designated by Schoellhorn. Secretary Kennedy cautioned that several countries were still very anxious that nothing be said publicly about these studies or to indicate that serious consideration being given to flexibility. Believe Germans are prepared proceed on this basis.

Significantly, Schiller indicated that while his position with respect to three steps in reform of monetary system shared by Bundesbank and academic institutes in Germany, same elements in Cabinet and public, which strongly and effectively opposed revaluation, oppose all proposals on flexibility. Nevertheless, he saw merit in proceeding with studies and plans, which he agreed to keep secret until after IMF meetings.

Schiller indicated that, if at all possible, he would attend American Bankers Association meetings in Copenhagen week of June 15 in anticipation that he and Secretary Kennedy might discuss these problems further with each other and with other key Ministers.



129. Action Memorandum From the President's Assistant for National Security Affairs (Kissinger) to President Nixon/1/

Washington, June 6, 1969.

/1/Source: National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 309, Balance of Payments. Secret. Drafted by Bergsten. A stamped notation on the memorandum reads: "The President has seen," and a handwritten notation indicates that it was returned from the President's office to Kissinger on June 11. The President wrote on the memorandum: "High priority."

The International Monetary Situation

Memoranda from Paul McCracken

Attached at Tabs A and B are information memoranda from Paul McCracken on the international monetary situation./2/ Their major points are:

/2/Not printed. These were two of the more or less weekly memoranda from McCracken to the President apprising him of recent developments in international monetary or financial affairs.

1. The U. S. balance of payments was in deficit by the incredible amount of $2.1 billion in the two weeks ending May 14. (The deficit has never been more than $4 billion in any previous year.) The U. S. was thus the source of about one-half the money which flowed into Germany during that period. For the year to date, we are now in small surplus on one of our payments definitions and in deficit by about $4 billion on the other.

2. Germany has lost about $1.2 billion of the $5 billion inflow of those two weeks. The market is not convinced that the DM will not be revalued and most of the speculative money is sitting tight to await further developments.

3. The UK has regained about $400 million of its $600 million loss. France has regained about $100 million of its $500 million loss.

Memorandum from Secretary Kennedy

Attached at Tab C is an earlier information memorandum from Secretary Kennedy which gives his views on the international monetary situation./3/

/3/Document 126.

The Secretary concludes that our short-term interests lie in promoting capital reflows out of Germany and into the UK. He thus:

1. Sees no alternative to accepting the German decision against revaluation, privately as well as publicly.

2. Notes that the issue of additional credits to the UK is bound to arise; their "new" $1 billion credit from the IMF contains at best $300 million of really new money.

3. Feels that the German decision will change only if an even more severe crisis develops or if other countries decide to change their exchange rates as well.

4. Suggests that an orderly exchange rate realignment may be possible this summer, implying (per 3) either that a severe crisis lies ahead or that countries other than Germany will decide to change their rates.

5. Judges that we will continue to face formidable uncertainties until the exchange rate situation is resolved.

Further developments

Developments since the German decision give little hope that the immediate problem of exchange rate disequilibrium has been solved.

First, the "recycling" of speculative funds agreed upon by the central bankers at Basel on May 11 is very meager. The Bundesbank has agreed only to recycle $500 million to countries other than the UK and $120 million to the UK. They will not agree to any recycling for the UK unless the German government guarantees the credit against UK default. Coming against the total inflow of $5 billion since the French referendum, the amount is thus grossly inadequate and, unless Britain is better provided for, may not be adequately distributed.

Second, as noted by Dr. McCracken, the market is clearly skeptical that exchange rate changes will be avoided. Only about 25 percent of the inflows have moved back out through the market. Most of the speculative money, at least for the moment, is awaiting further developments.

Third, there are additional uncertainties:

--Dr. McCracken relayed the bad U.S. balance of payments figures.

--The British trade figures are bad for the third month in a row and will heighten doubts that Britain has solved its balance-of-payments problem.

--The French trade figures for April are also bad and have intensified the view that devaluation of the franc must occur fairly soon.

--The additional German economic measures, adopted "in lieu of revaluation", are aimed mainly at their domestic inflationary pressures and hence will further increase their external surplus; their measures to deal directly with the external position are puny.


The one ray of hope is that Germany, despite its public avowals that its decision not to revalue is "eternal", has already indicated privately that it will still consider revaluation if it can get company from other countries. But no "company" seems interested and the Germans have also indicated that "eternal" means "until after its election in September." There is virtually unanimous agreement that a DM revaluation is inevitable; hence a new speculative crisis is certain to develop as the election approaches.

 What France will do regarding devaluation, after the runoff election, is unclear. Some experts think that Pompidou would devalue quickly and pin the blame on de Gaulle. And Poher has begun to echo the Strauss call for a "multilateral realignment".

Any new French government, however, would probably wish to deal with the pending wage negotiations before devaluing and would also need time to prepare a plan for supplementary domestic measures to make any devaluation work. (Such a position is quite defensible.) By the time these two problems are met, the Bonn elections may be close at hand and Germany will probably not wish to move even in concert with others. In short, there is no certainty that France will provide Germany with its desired "company" very soon.

The UK will also remain on the margin, with liquid debts swamping its meager reserves, especially if the Wilson Government continues to face major political problems. There is little chance of a discreet UK devaluation, however, which would provide "company" for Germany. The British would be more likely to impose additional import controls or let the pound float freely. A French devaluation without a German revaluation could force such action on the UK.

General uneasiness about exchange rates, especially if coupled with large U.S. deficits, could also jeopardize European agreement to early and sufficient activation of Special Drawing Rights and thereby exacerbate the jitters surrounding the system.

The United States has two tactical options in the present situation:

(1) We can attempt to apply pressure soon, during a period of relative calm, to try to pre-empt future crises. The pressure would be mainly on the Germans to revalue or take decisive alternative steps to reduce their payments surplus, but might have to extend to other countries to provide "company" for them.

(2) We can simply await the next crisis, which is virtually certain to occur by September and could come much earlier, and seek the desired changes then.

Experience shows that intervention in a period of relative calm--unless handled extremely deftly and with extremely good luck--can create the very crisis it seeks to pre-empt. Intervention during a crisis, however, could plunge us even more deeply into the midst of a major domestic political struggle in Germany.

Embassy Bonn has recommended against any U.S. intervention due to the possibility of fanning "nationalistic sentiments" in Germany and strengthening the right wing there. Our approach prior to the decision not to revalue was, of course, unsuccessful. We are thus threatened with policy paralysis in dealing with the immediate situation.

However, inaction carries serious risks. The certainty of renewed crises and the nearness of the UK to bankruptcy means that the system could suffer severe disruption. This could lead to renewed pressures on the U.S. gold stock, especially if our balance of payments were to deteriorate sharply, and force us to make some difficult decisions on our own international monetary policy.

And even if the system does not face fundamental disruption, there is likely to be a further escalation of restrictions on international trade and payments by other countries unless the necessary exchange rate realignment occurs and there is reform of the overall system.


The short-term threat of renewed crises highlights the more fundamental problems of the international monetary system. In fact, the short-term problem of exchange rate realignment probably must be solved before we can get the type of long-range reform favored by most of our officials--greater flexibility of exchange rates--or even before this kind of reform can be openly discussed internationally, because of the probability of kindling speculation if rates are out of line when such reform is discussed.

The time has thus come when the United States needs to define clearly its strategy on both the short-term and longer-term aspects of the monetary problem and pull the two together.

There are a number of important international monetary meetings in June. In addition, Secretary Kennedy's speech to the American Bankers Association on June 20 provides an excellent opportunity for a major statement of the Administration's international monetary policy. If we do not begin to move now, it will be difficult to do so before September. At a minimum, we should be ready to take major initiatives in the fall after the key European elections are over. We should thus try to make our decisions fairly quickly.

In early April, you asked the Secretary of Treasury to coordinate for you an interagency options paper on monetary reform./4/ Two weeks ago you agreed to my recommendation to convene an early meeting to discuss overall international monetary policy, to be attended by the Secretaries of Treasury and State, Chairman Martin, Paul McCracken and myself./5/

/4/See footnote 6, Document 16.

/5/See Document 124.


I now recommend, that you authorize me to:

1. Set up a meeting in about ten days to consider U. S. international monetary policy, both short-term and toward longer run reform of the system. (If our meeting slides beyond that point, it will be difficult to take any initiatives you might decide before summer.)


 /6/The President initialed this option. The meeting was held June 26; see Document 131.

2. Ask Treasury to submit, as the basis of discussion for that meeting and sufficiently prior to it, the interagency paper you asked for earlier.

See me

/7/The President initialed this option. See Document 130 for a discussion of the paper submitted for the June 26 meeting.




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