NAC Files, Lot 60D137, NAC Minutes1

Minutes of the Eightieth Meeting of the National Advisory Council on International Monetary and Financial Problems, Washington, January 19, 1948

top secret


  • Secretary John W. Snyder (Chairman), Treasury Department
  • Mr. Willard L. Thorp. State Department
  • Mr. Norman T. Ness, State Department
  • Mr. Thomas C. Blaisdell, Jr., Commerce Department
  • Mr. Marriner S. Eccles, Board of Governors, Federal Reserve System
  • Mr. J. Burke Knapp, Board of Governors, Federal Reserve System
  • Mr. William McC. Martin, Jr., Export-Import Bank
  • Mr. Andrew N. Overby, International Monetary Fund
  • Mr. George F. Luthringer, International Monetary Fund
  • Mr. Frank A. Southard, Jr., Treasury Department
  • Mr. Joseph B. Friedman, Treasury Department
  • Mr. Andrew M. Kamarck (Acting Secretary)

French Foreign Exchange System, Proposal. Mr. Overby called the attention of the Council to the three documents he distributed which were prepared in the Fund (distributed as NAC Document No. 602).2 Mr. Overby began the discussion by stating that the problem presented by the French proposed foreign exchange rate system is the most important the Fund has faced to date. It is not possible to get a desirable answer, the problem is to get the least undesirable answer. [Page 599] His conclusion was that the French proposal is most unsatisfactory and would cause trade and exchange difficulties of great magnitude in Europe.

Position of Executive Board. Mr. Overby reported that Mr. Bolton, the British Director, feels that the French have not thoroughly considered what they are getting into: The Bank of France has not been consulted. The French action will aggravate the exchange crisis in Europe before it is known what the ERP framework will be. If the French carry through their plans it will be hard for Anglo-French collaboration to continue. The United Kingdom and other ERP countries will have to take punitive action or follow suit. It would be easy for the French to import British goods under this proposal and sell them in the United States; the United Kingdom would lose dollars therefor and receive francs. The Belgian Director said that the Italian system is already working out in this way. Italian goods are bought in the United States market for Belgian consumption rather than in Italy. Only the French and British have taken a definite position, the Belgian and Dutchman have asked questions. Most of the representatives on the Board are waiting for an indication as to the United States position. The United States vote will be decisive.

The Staff of the Fund has concluded that the French proposal should be rejected.

Discussion by NAC. Mr. Thorp stated the position of the Department of State is that it would be most unfortunate if the United States blocked an action which a country thinks is in its own interest. Throughout Europe there would be a bad reaction if the United States vetoed an action of self-help of a government. If we oppose the French action it should be a group decision with the United States concurring. The Chairman stated that he thought it was most important that any action taken by the United States should not appear to be United States meddling in the internal affairs of other countries.

Mr. Overby said that in most major policy issues in the Fund, the United States vote will be a decisive vote. The Fund was set up to be an instrument of international advice and consultation. The advisory function of the Fund should become more important than the currency purchases. If we accept the doctrine that for political reasons we must accept any proposal which a country puts forth, this threatens the entire purpose of the Fund. Mr. Eccles agreed with Mr. Overby. It would be dangerous to accept anything that an individual country proposes. The Fund was designed to be a restriction on sovereignty. He also wished to point out that if we please France at this point we are displeasing the United Kingdom. Mr. Martin stated that we cannot and must not support every government when it comes in with a [Page 600] proposal to the Fund. However, the Fund must be flexible and allow countries to go through a process of trial and error. He wished to know why it was necessary to make a stand at this point.

Mr. Luthringer felt that the problem before the Council was a more fundamental question than an exchange rate change. The Fund must be hesitant in imposing a rate on a country which is different from what the country wants. However, in this case France, which is the most important financial country on the continent of Europe, is suggesting a new exchange system which is contrary to the whole theory of the Fund. The Fund agreement is based on an internationally agreed system of rates and upon agreement before a rate is changed. This system avoided this whole process.

Mr. Southard said that he was disturbed by the fact no acceptable alternative had been suggested. The Fund staff proposed that France impose flexible taxes which would have the same effect. He wondered whether it was not too late to disapprove of flexible rate systems; a number of countries already have them. Here we have a country which takes a strong stand and maintains that it has the same right as Italy to have a fluctuating rate. It points out that its neighbors would object to higher fixed rates. There are considerable difficulties in imposing flexible taxes. The alternative may be to do nothing. The National Advisory Council had voted approval for floating rates the preceding week and it was clear that it had France in mind. Mr. Southard said that he was not afraid to apply that decision now. He was worried about the Fund’s staff holding to fixed pars at this time, and asked whether we are so sure that we are right technically to override the French.

Mr. Blaisdell said that we are having a hard time to live with our importers at the present French rate. He did not see how we could say no to the French proposal unless we have something better to propose. Our relations with the United Kingdom are the key of our policy but we still need an alternative to the French proposal.

Mr. Knapp said that he agreed with Mr. Overby and Mr. Luthringer. The National Advisory Council action on floating rates considered floating rates that were temporary and only as a means of arriving at another fixed rate. The proposed French system is rigged to make importers pay subsidies for tourists’ expenditures and the repatriation of capital. He was skeptical of the efficacy of this approach.

Mr. Eccles said that he could not see why the French have to maintain their present rate of 119. If they cannot get the new system he did not see why they could not go to 214. Mr. Martin said that he had been told by the French Ambassador and Mendès-France3 that Schuman [Page 601] wants this proposal. The Chairman said that the Fund could not simply deny the French request, an alternative has to be offered.

Mr. Overby said that the French do have two alternatives (a) a pattern of rates based on 250–275 and a free market for invisibles, (b) a rate of 214 across the board and a free market for invisibles. The United Kingdom would accept either of these as a compromise. The Italian case is not a precedent. Italy had no agreed par value, it had a floating rate at the time it joined the Fund and it is not a major trading nation. Mr. Luthringer said that the French have not only a problem of increasing exports in the United States, they have a problem of over-all increase in exports.

The Chairman and Mr. Eccles felt that the United States representative on the Fund should attempt to work out an acceptable compromise which would be agreeable to both the British and the French. The Council agreed with this position and stated that it would be ready to meet at any time when the U.S. Executive Director needed further advice.

  1. Master file of the documents of the National Advisory Council on International Monetary and Financial Problems for the years 1945–1958, as maintained by the Bureau of Economic Affairs of the Department of State.
  2. Not printed.
  3. Pierre Mendès-France, French executive director of the International Bank for Reconstruction and Development.