851.5151/1–1948: Telegram

The Ambassador in France (Caffery) to the Secretary of State

top secret

314. For Secretary of State and Secretary of Treasury. Bidault,1 obviously very disturbed, reviewed for me this morning results of conversation in London between Mayer and Cripps and submitted copy of letter from Premier Schuman to Secretary Snyder (I am sending a confirming translation of letter in separate cable).2 Bidault echoed strongly Schuman’s request to Secretary Snyder, repeatedly emphasizing the critical importance to the French economy and to any program for monetary stabilization of carrying out the flexible exchange system proposed. He indicated that the French Ministers were shocked by the complete unreceptiveness of the British, particularly in view of French willingness to agree to buy and hold sterling freely without question of conversion into gold or dollars. Bidault also stressed that proposals to the British as outlined in Schuman’s letter were “obviously fair and reasonable”. He indicated that the British opposition was not [Page 602] based only on question of pound sterling appearing at a discount against US dollars and on desirability to avoid breaking letter of principles of IMF even on temporary basis. British also evidenced strong disagreement with Mayer’s policy of bringing “air” into the French economy by lifting and relaxing controls on prices and commodities to bring about an internal monetary stabilization. This may result (perhaps was so designed) in embarrassment to French administration with Socialists on abandonment of “dirigisme”.

Bidault’s remarks were confirmed to Treasury representative by Guindey who accompanied Mayer to London.

Guindey added that British even expressed view that French program was not in keeping with purposes of CEEC and ERP. Guindey acknowledged that decision is of first importance for IMF and is greatly concerned lest IMF postpone decision for study. In his view this would have most unfortunate consequences in undesirable publicity for Fund as well as for French Government. Executive board of Fund is receiving proposal this morning. Guindey hoped Overby would receive immediately statement of French views. Guindey repeatedly comment on “unfortunate and sad” development and said that never had he experienced such a completely negative reaction in this contact with the British. He commented that he felt cause was a complete disagreement on basic economic policy and that an “entirely different reaction would have been received from a Conservative government.”

I would strongly urge acceptance of Premier Schuman’s position that system of official rate with added premium combined with flexible rates be adopted as soon as possible. There can be no question but that the obviously overvalued franc is a serious deterrent to French exports. Exports to hard currency countries have virtually ceased. It is also distorting trade patterns and internal cost structures of other Euorpean countries. An exchange rate having some basis in “market realities” is also an essential step to aid French administration in any mobilization of undisclosed assets in gold and foreign exchange as well as realization of current earnings in exchange. I do not suggest that the proposal in itself will guarantee these results nor would I suggest that the measures taken by Mayer are more than a first step in correcting the serious internal monetary disequilibrium in France. As I have reported previously, the increase in costs and prices in France can be expected to continue and, until a satisfactory harvest arrives, probably at a rate steeper than that of most of its European neighbors. Clearly, in these conditions, complicated by the ever-present political question, it is not possible to arrive at a definitive adjustment which would give an economically suitable rate of exchange with any assurance [Page 603] that it would not soon cease to be satisfactory [;] the limited “free” rates for convertible currencies will be a positive aid in facilitating sale of exports and tourist receipts for convertible currencies. At same time, the decision for an upward adjustment of the official rate through the device of an added premium of 80 percent should bring prices in France reasonably in line with prices in most of the other important countries in its external trade. The results, though limited by availabilities, should be of immediate benefit to France’s balance of payments position by limiting import demand and encouraging exports. Subsequent developments may well create an atmosphere more favorable for a final adjustment of the rate of the franc.

Under present circumstances with inadequate reserve for urgently needed imports as well as for monetary purposes, the administration of such a program will be very difficult. Nevertheless, particularly if a measure of success is achieved in realizing current receipts of exchange and undisclosed assets, the system should provide a useful flexible instrument to approach gradually the time when a final internal and external stabilization can be attempted. I might add that Bidault and Guindey insisted that French administration would “do nothing rather than carry out a simple devaluation”. They stated it would be merely another interim devaluation “without results.”

  1. Georges Bidault, French Minister of Foreign Affairs.
  2. Not printed; in it Schuman referred to his conversations with Snyder the previous September (see Foreign Relations, 1947, vol. iii, pp. 756757); stated that the first half of his program had been carried out and that it was now time to proceed with a plan for monetary reform: commented on the need for cooperation with other countries in the interest of European stabilization; and requested support by the United States in the meetings of the International Monetary Fund. (851.5151/1–1948)