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

241. Telegram From the Department of State to the Embassy in France¹

Washington, August 4, 1972, 1933Z.

142290. Subject: IMF Report on International Monetary Reform. Ref: Paris 14620.² For FinAtt.

1. Please transmit following letter dated August 4 (and attachments) from Secretary Shultz to Finance Minister Giscard d’Estaing.

2. “Dear Mr. Minister: Thank you for your letter of July 31 concerning the work of the Executive Board of the Fund on its report concerning international monetary reform. I appreciate the frank and direct expression of your view.

You have certainly been correctly informed that the U.S. Executive Director has recently put forward in the Fund certain views of the U.S. Government concerning the questions which are at issue in the projected international economic and monetary reform.³

In this effort, I fully share your wish that the report, however imperfect, pose relevant problems, explore feasible alternatives and, especially, ‘preserve the possibility of subsequent agreement on the modalities of reform.’ This is our entire purpose in the drafting proposals we have made. The apparent question in your mind as to our purpose can perhaps be answered most clearly by reviewing the background of this matter, and the manner in which our own concern with this objective has been expressed.

To that end, I asked that a short memorandum be prepared reviewing our approach. I attach it for your interest.

I should note that the substantive views put forward in writing by the U.S. Director are entirely consistent with those which have been articulated for many months by high U.S. officials in public and private statements.

In the light of our experience, I believe you will agree that, since the staff draft failed to take adequate account of our views, we had no alternative to proposing such additions as we felt essential. Indeed, we have found others welcomed this direct expression of views on matters of such direct concern to us.

If the draft Fund report had, in fact, left open an adequate range of realistic options for an appropriate reform of the international economic and monetary systems, we would have been satisfied. That is all we seek. But we are convinced the drafts at hand did not accomplish that purpose. We are frankly very disappointed at this.⁴

I look forward to the opportunity to discuss these questions with you directly, and you may be assured we will bend every effort to speed the process of reconciling views and achieving fundamental reform. In that process, all my experience in other areas of public policy and negotiation suggests the wisdom of openly addressing the basic issues involved, and patiently seeking a sound solution, rather than accepting at the start a formula for discussion that obscures important dimensions of the problem. Sincerely yours, George P. Shultz”.

Begin text first attachment.

Memorandum (dated August 2, 1972) for Secretary Shultz. Subject: IMF Board of Executive Directors Consideration of Report on International Monetary Reform.

From the very first suggestions that a report on this subject be completed by the Executive Board prior to this year’s Governors’ meeting and before the agreed negotiating forum was established, I have expressed serious doubts that the Executive Board should try to reach definite conclusions in a report at this early stage. These views were repeated in the Executive Board in May, when I suggested “only a report providing a genuinely neutral description of various policy options would have any chance of being adopted.”

We were therefore disappointed, when the original staff draft of the report was issued in early June, that instead of developing underlying issues and basic options the draft adopted a narrow focus pointing almost exclusively toward a particular form of an asset settlements system and a confined range of technical possibilities relevant thereto. With this in mind, on June 19, I distributed a written statement (copy attached) expressing our views on the report, emphasizing our belief that the most useful contribution of a report would be to identify and reach a consensus on the essential nature of the problems, without foreclosing policy options. I urged a “less technical” but “more fundamental” approach concentrating on achieving an agreed description of the kind of world to which the reforms must be addressed and developing the key policy issues which the Governors would wish to address.

In addition to my written and oral comments in the Fund Board, our concern over the direction of the draft report was also strongly stressed in direct discussions with the Managing Director and top Staff of the Fund, and with a number of Executive Directors, by the Under Secretary for Monetary Affairs.

We were aware that the approach adopted in the draft, if pressed, would inevitably place the primary burden on the U.S. to inject other and broader viewpoints by a process of addition and amendment. While we were willing to accept that responsibility, we also recognized some misunderstanding or question of our motives could arise. We, therefore, greatly preferred to work with staff drafts that more fully developed the problems and basic options.

These strongly stated views were not adequately reflected in the revised draft distributed in the first part of July. Accordingly, to achieve the analysis and balance we felt necessary, we had no alternative to submitting written material reflecting U.S. views, attempting to focus more attention on what we consider to be the real issues and appropriate policy options. In this process, I have, in important areas, taken care to emphasize the United States, itself, had reached no conclusion and final judgment. William B. Dale. End Text First Attachment.

Begin Text Second Attachment

Mr. Dale’s Overall Comments on Report to Governors—June 19, 1972

With the opening of discussion based on four draft chapters for a report to assist in the reform discussions, it is important to consider what kind of product we can realistically hope to agree on that would also be helpful—not only to the Governors in general, but in particular to the prospective Governors’ Committee as it begins its work. At this early stage of work on reform, the critical task is to insure a fully adequate—a wide enough—variety of approaches to the problem so as not to preclude options at too early a stage.

We are not satisfied that the draft as it stands does that adequately. While it leaves some options open, it basically narrows down the discussion quite rapidly—prematurely in our view—to only one set of basic options, a somewhat improved par value system coupled with a reserve asset settlement mechanism with the SDR at its center. We do not deny that such a system has certain attractions, but so may other combinations that have not been considered in the draft, and in any event it is by no means evident to us—from reading the draft and from other thoughts and sources—that such a system could in fact be made to work realistically even assuming it were generally considered desirable after examination of the alternatives.

There seem to me to be four main possibilities for a report:

1. One which puts forward a full and really open-minded discussion of a range of technical and policy options adequately broad for the depth and scope of the reform negotiation which lies ahead;

2. One which would be a mish-mash of undigested and inconsistent ideas, which might be the result if everyone simply tossed his favorite idea into the hopper;

3. A less technical and perhaps shorter report, but quite possibly a more fundamental one, concentrating on:

a. a description of the world which the trading and monetary systems must be addressed to; and

b. discussing in reasonably brief and non-technical manner the key policy issues to which the Governors’ Committee will wish to direct its attention.

4. No report, because in the end we found ourselves unable to reach sufficient agreement.

The first outcome, while ideal, may as a practical matter be out of reach. The second or fourth outcomes constitute very real possibilities, neither of which would be particularly useful from any point of view.

The third option may well be the most realistically useful, and could provide very helpful material indeed for the work that lies ahead. End Text Second Attachment.

Irwin

1. Source: National Archives, RG 59, Central Files 1970-73, FN 10. Confidential; Priority; Limdis; Greenback. Drafted in Treasury by Under Secretary Volcker on August 4, and cleared in State by Armstrong (E), Weintraub (E/IFD), Springsteen (EUR), and Curran (S/S) and approved by Acting Secretary Irwin.
2. Document 238.
3. On August 11 the Embassy in Paris reported on an article in that day’s issue of Le Monde, based on “rumors from Washington,” that the U.S. Executive Director at the IMF had proposed about 20 changes in the Board’s report on international monetary reform, and that the French Executive Director had objected that these reflected the U.S. viewpoint but would not be so identified in the report. (Telegram 15401 from Paris, August 11; ibid.) The Department of State responded, informing the Embassy that following Giscard’s July 31 letter to Shultz the French Executive Director had proposed two inserts to the IMF report to make it clear the French did not believe “exchange rates in the past had been sticky and that the U.S. should not expect to correct its balance of payments problems only by current account improvements.” The French statement also made it clear France wanted to increase the role and price of gold in the international monetary system. (Telegram 146942 to Paris, August 12; ibid.)
4. Draft chapters of the IMF Report on International Monetary Reform and Commentary of U.S. Officials are in the Volcker Group Alternates papers from the summer of 1972. (Washington National Records Center, Department of the Treasury, Volcker Group Masters: FRC 56 86 30, 1972, VGA and VG/INFO series)