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 [Page 304]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.
11. If any interest is expressed in pursuing bilateral discussions with the United States, you might say that Secretary Kennedy would be [Page 305]glad to meet with representatives of the country concerned in Washington.
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 VolckerGroup, 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 Nixontraveled 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.↩
On February 20 Chairman of the Council of Economic Advisers McCrackensent 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, NSCFiles, 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 thata fluctuating exchange rate, besides causing a serious shrinkage of trade, is also apt to give rise to international political turmoil.” (Ibid.