Foreign Relations of the United States, 1969–1976, Volume XXXI, Foreign Economic Policy, 1973–1976

50. Memorandum From the President’s Assistant for National Security Affairs (Kissinger) to President Nixon¹

Washington, August 7, 1973.

SUBJECT

• Letter from President Pompidou

President Pompidou’s letter of June 25 (Tab B)² is a follow up to the discussions on monetary and agricultural policy in Reykjavik.³

Summary of Pompidou Letter

President Pompidou’s letter covers several subjects. The main points he makes are the following:

• —Agreement has been reached on the basic principles of the future international monetary system, including a return to general convertibility.
• —Because considerable time will be needed before a new international monetary system can be adopted, it is very important that the transition period be well-managed so as not to lead to a crisis of confidence that could be very damaging. This means, in Pompidou’s view, not only effective anti-inflation programs, but active defense of the exchange rate parities established in March 1973⁴ and ending the de facto freeze on central bank reserves.
• —The Soviet Union will play a greater role in the international monetary and trading order. They have a particular interest (related to their own planned economy) in fixed exchange rates, agreement on an acceptable reserve system, and restrictions on the role of certain national currencies as a measuring rod of the system.
• —The present world agricultural situation is very troublesome: people in many poor countries suffer from hunger and malnutrition, but producing countries compete vigorously for sales in advanced countries. Pompidou believes that international agreements on prices, production, and stocks of basic foodstuffs are needed to permit adequate coordination of food export policies to help solve major problems of the developing world.

My Views

Pompidou’s discussion of the monetary situation stresses the traditional French line: strong efforts to fight inflation as a means of stabilizing the international monetary situation, the need to defend exchange rates, the need for coordination to fight destabilizing short-term capital movements, and the importance of both dollar convertibility and a means of permitting gold to play a role in the settlement of payments imbalances. We are in the process of doing the first, although limits on exports will decrease the supply of agricultural products in Europe and thereby contribute to inflation there. The second, the defense of exchange rates agreed upon in March, remains a matter of controversy within the USG. The third, agreement on means of controlling short-term capital, is a major concern in Europe, but one we have not found a satisfactory means of resolving. The fourth involves the issue of convertibility and the role of gold in the system, both of which we feel should not and need not be resolved before we have agreed on the outlines of a new monetary system.

Pompidou also places greater stress on insuring that the new monetary system meets the needs of the Soviets. His efforts on their behalf are motivated to some degree by the fact that the system which, in his view, the Soviets would find most compatible is also quite compatible with French interests.

With regard to agriculture, the French refrain about international commodity agreements is not new. The United States has traditionally objected to such agreements because they are difficult to manage and because a free international market in agricultural trade seemed to us to best exploit our competitiveness in this area. The possibility that such agreements would lead to higher world food prices, and a higher share of the market for France than would normally be the case, should be grounds for caution. However, the situation has changed this year as a result of the de facto disappearance of the U.S. buffer stock. Moreover, the recent imposition of export controls on soybeans will strengthen resistance in Europe and elsewhere to continuing full reliance on the U.S. as an agricultural supplier. Therefore I believe this to be a timely moment for at least examining the concept that Pompidou outlines.

The interim reply for your signature to President Pompidou at Tab A would thank him for his letter, note that the United States will continue to work toward constructive reform of the international monetary system, express appreciation for his views on the USSR and invite further elaboration of his thinking of possible agricultural agreements. The letter has been cleared with Mr. Gergen’s office.

Recommendation

That you sign the letter to President Pompidou at Tab A,⁵ in which Secretary Shultz concurs.

1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 752, Presidential Correspondence 1969–1974, France Pompidou, 1972. Secret. Sent for action. A stamped notation on the first page indicates the President saw it.
2. Printed as Document 43.
3. See Documents 40–42.
4. See Document 35.
5. Printed as Document 51.