NAC Files, Lot 60D137, NAC Minutes
Minutes of the Eighty-First Meeting of the National Advisory Council on International Monetary and Financial Problems, Washington, January 20, 1948
Present:
- Secretary John W. Snyder (Chairman), Treasury Department
- Mr. Willard L. Thorp, State Department
- Mr. Norman T. Ness, State Department
- Secretary W. Averell Harriman, Commerce 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. Walter Sauer, 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)
1. French Foreign Exchange Proposal.
Mr. Overby reported that he had seen Mr. Gutt1 at 6: 30 the evening before and suggested that an attempt be made to secure a compromise, that is—a fixed pattern of rates for trade and a free market for invisibles. Mr. Gutt then conferred with Largentaye and Mendès-France. However, the position of Paris is that there should be no compromise in any respect. Mr. Overby said that the United States decision probably could not be postponed any later than that night. At the Executive Board meeting fears were expressed that exchange unstability and retaliatory action would spread. The British Executive Director said that adoption of the proposal by France would lead to a breakdown of European cooperation. The Belgian Director, although personally opposed, is instructed to vote for the French plan. The Dutch are against it. Mr. Overby said that the only conclusion that could be derived from the discussions with the French is that the French have not yet worked out the technical details of their proposal, that they have not thought it through. Mr. Bolton says that the Bank of France has not been in on the plans and that the proposal stems from a combination of theorists in the French Treasury and from Istel2 and adventurers in the French markets. Mr. Overby had asked Valensi why the French would not try the compromise which had been suggested. Valensi said that it had been felt that it was politically impossible to set up a free market for invisibles only. The Chairman said that, of course, we have to measure Bolton’s statement by the self-interest of the United Kingdom.
Mr. Southard was asked by Mr. Thorp to read the political parts of the cables from the Paris Embassy. In these cables Mr. Caffery strongly favored the French proposal and stated that, in his opinion, the life of the present French Government was at stake. Mr. Thorp said that Mr. Douglas felt that we could not oppose the French in this matter.
The Chairman tentatively suggested that Mr. Overby try to secure a compromise and that there be a secret vote taken in the NAC for or against the French proposal, the results of which the Chairman would communicate to Mr. Overby if the attempt to secure a compromise failed.
Mr. Harriman said that he was not convinced that the French could not accept the compromise for political reasons. He pointed out that he had had experience in negotiating with the French for a considerable period and that this was a common technique of theirs.
[Page 605]Mr. Eccles brought to the attention of the Council that the legislative history in the Bretton Woods Agreements shows that the United States contemplated that its vote in the Fund would be the decisive vote. The NAC was set up for the purpose of instructing on the United States vote and has a grave responsibility to protect the Fund and to make the Fund an effective instrument. Mr. Martin said that the stakes are high and that the NAC could not disregard the judgment of the Executive Director. It was his feeling that the French are putting up a big front and that, if the United States took decisive action, their bluff would be called.
Mr. Overby felt that essentially, there are two alternatives: That the French adjust their rate to the dollar and keep their trade in line with other areas with commercial policy devices, or that the French adjust to the other rates and then have a special exchange device for the dollar. The first question on which the National Advisory Council advice was requested was that if a compromise is possible on these terms, would the Council authorize the U.S. Executive Director to accept a fixed pattern of rates going down to 214 if necessary, with a free market on invisibles?
Action. The National Advisory Council took the following action:
The National Advisory Council advises the U.S. Executive Director on the International Monetary Fund that if a compromise is possible on the French proposed exchange rate system, the U.S. Executive Director should vote in favor of a fixed pattern of rates with the franc–dollar rate as favorable to the franc as 214 to the dollar if necessary, and with a free market on invisibles.
Mr. Overby stated that the British Executive Director would probably agree to this compromise proposal.
Free Rate on Trade Items. Mr. Overby then raised the second problem—that if a compromise was impossible how should he vote on the proposed free dollar rate for trade items. Mr. Overby said that if the French fixed a rate of 265 francs to the dollar there would be no danger that this was out of line with the dollar and that then we and the French would exert pressure to get the other countries in line. The French could in the meantime use commercial policy devices to prevent exports from flowing unduly to the neighbors.
While Mr. Bolton says that the British have no difficulty in selling their exports, Mr. Overby’s opinion was, however, that the British might have to adjust the pound once it is clear what the European Recovery Program will be. Mr. Thorp added that once there is a European Recovery Program there might be a multilateral adjustment of exchange rates.
Mr. Overby said that other countries, in addition to France, have [Page 606] been strongly urged to increase their proportion of exports to the United States. Mr. Southard added that the French indicate that they want to do this at once and not wait for ERP.
Mr. Martin asked whether it was the opinion of Mr. Overby, Mr. Luthringer and the Fund’s staff that the proposed French adjustment would start an exchange war which would make the Fund ineffective from this point on. Mr. Overby answered that the French proposal would seriously impair the work, the role, and the effectiveness of the Fund. Mr. Thorp said that if the French leave the Fund it will seriously impair the Fund too. Mr. Snyder suggested that the United States position in the Fund should be for compromise arrangement—neither for nor against the French—on the basis that we think that some parts of the French proposal required adjustment. Mr. Martin said that he would like to see this proposal tried, that it appeared to him that the French representatives have been protesting too much and perhaps may be bluffing.
Mr. Harriman said that he did not see how a compromise could be possible unless the United States is ready to reject the French proposal. Mr. Overby said that he agreed. The Chairman said that the position we should take is that we are not ready to vote against the proposal, that we wish a compromise worked out, that we are leaning toward saying “no” but would prefer not to have to.
Mr. Overby thought it would not be possible to get force behind the compromise unless the United States was ready to vote against some parts of the French proposal. Mr. Eccles agreed that we would have to be ready to back up our suggestion but that on the record we could prevent a United States vote against France. Mr. Thorp felt that the action by the Fund should take the form that “The Fund after consideration feels the French program can be improved and difficulties eliminated if France would reconsider the proposal along the following lines.…”
Mr. Harriman thought, however, that we could not hope to get the French to recede from their proposal unless we were ready to vote “no”.
Mr. Thorp suggested that in the showdown the Fund should acquiesce on the expectation that this is a temporary action with the situation to be constantly watched by France and by the Fund. The French Government is struggling to put its house in order and wants to do something and we should be sympathetic. Further, the situation is impossible to handle country by country and the Fund should, in the next few months, review the whole of the European exchange rate structure.
The Chairman proposed that the United States Executive Director [Page 607] should point out to the French, that they, at best, can get only a split vote, that the difficult point is the trade items, and the French representatives should go back to their government and try to get reconsideration on this point. Mr. Eccles said that he felt the French were being offered an acceptable alternative and that the French position is unreasonable. Mr. Harriman and the Chairman summed up the feeling of the Council that the Executive Director should go back with a compromise proposal and should go as far as he can without finally saying “no” to the French, but that if the French would not agree, the NAC would meet again on this point.