Foreign Relations of the United States, 1969–1976, Volume III, Foreign Economic Policy; International Monetary Policy, 1969–1972

228. Volcker Group Paper¹

VGA/72-40

Washington, April 27, 1972.

Recommendations

The United States should recommend that the reformed international monetary system include:

1. A ministerial committee on adjustment. This committee should monitor balance of payments developments and government policies in light of their contributions to adjustment, question member governments with respect to their policy objectives and policy measures, issue periodic reports regarding the adjustment policies of members, make recommendations regarding the appropriate adjustment measures to be taken by members, and make decisions regarding the application of sanctions.

2. A set of discretionary sanctions that encompass both capital and current account transactions. The adjustment committee should be free to decide whether the sanctions should be permissive, recommended or mandatory, depending on the degree of support in the committee for the imposition of such sanctions. One sanction would be the imposition of a tax on all purchases of a currency, and a subsidy on all sales of such a currency. Alternatively, restrictions could be imposed on all foreign exchange transactions along the lines of the scarce currency provisions of the IMF Articles of Agreement. In specific cases, where a country was attempting to prevent adjustment in the current account, or in the capital account, the committee should be able to recommend specific restrictions on current accounts or capital account transactions.

3. A set of presumptive criteria to guide the committee in making judgments regarding the adjustment required in the balance of payments positions of individual members. Ideally, such criteria would also provide the basis for a scale of reference that could indicate the degree of disruptiveness of a given country’s failure to adjust. One possibility would be to establish a set of bands based on reserve holdings of members. There is some disagreement among members of the Volcker Group Alternates, however, over the suitability of reserve holdings as a measuring rod for the adjustment required.

1. Source: Washington National Records Center, Department of the Treasury, Volcker Group Masters: FRC 56 86 30, 1972, VGA/72-1-VGA/72-50. Confidential. The April 28 cover memorandum from George H. Willis to the Volcker Group Alternates indicates these are revised recommendations for the VGA/72-34 paper on this subject prepared in OMB by Geza Feketekuty. VGA/72-34, dated April 12, was circulated to the VGAs on April 13. An earlier version of Feketekuty’s paper, entitled “Methods of Inducing Surplus Countries To Adjust,” was circulated as VGA/72-26 on April 5. (Both ibid.)