The United States High Commissioner for Germany ( McCloy ) to the Secretary of State
2384. (CCF 1256) State pass Army SAOUS for Voorhees from HICOG.
Position DM conversion factor in light sterling devaluation1 subject.
- Representatives Allied High Commission communicated with Adenauer immediately upon news sterling devaluation. Meeting held between finance advisers High Commission and Erhard, Minister of Economics, Pferdmenges, financial adviser to Adenauer, and Blücher, Vice Chancellor.
- Erhard indicated German Government favors 20 percent devaluation, i.e., 24 cent mark. Government favors 20 percent rather than 30 percent devaluation because of fiscal consequences larger devaluation in view surplus imports especially imported foodstuffs, and adverse political and economic impact of larger devaluation on the cost of living of workers and savings. German Government will give definitive recommendation to High Commission September 22. Allied High Commission will pass on recommendation and give final decision on new conversion factor soonest possible after receiving German recommendation.
- All indications thus far are that German recommendation for new DM conversion factor will be between 22.5 and 25 cents.
- Believe British will support German recommendation and we are not disposed to press Germans for any greater devaluation than [Page 449] any rate within the above range, particularly in view of highly political nature of arguments advanced by Erhard.
- Time factor is a matter of urgency as Bank Deutscher Laender in common with other European central banks has suspended all foreign exchange transactions including ECA procurement with exception exchange facilities for travellers and other visitors in Germany who are being given 50 percent advance against acceptable foreign exchanges. It would be most desirable to act before weekend and believe we could get prompt Allied High Commission agreement. We will cable you final figure using code name “old fashioned.”
- Preliminary position paper of US element of HICOG being dispatched to you
by air pouch today. Summary of conclusions of paper which
was prepared prior to devaluation sterling follow:
“In case of a devaluation of European currencies, and in particular the pound sterling, we believe that the Deutsche mark should follow suit. In this we are basing ourselves on the following arguments:
- We are impressed by the necessity for Western Germany to be in a position to earn by exports to South America and the Eastern European countries, the imports which she will have to obtain in order to be viable.
- With respect to exports to the United States, lowering of prices in terms of US dollars should lead to some increase in US dollar earnings.
- With respect to exports to Western Europe, the intra-European payments agreement with its provisions of transferability of 25 percent drawing rights, gives Western Germany a definite interest in fulfilling the agreed estimates of intra-European surplus as the granting of US dollar aid depends directly on this fulfillment.
- If Western Germany stood alone in maintaining the present value of its currency, the suspicion might arise that Western Germany was preparing to revert to Germany’s tactics during the 1930’s through which she repaid [reaped?] the benefit of the devaluation of other currencies in her imports and fostered her exports by dumping and other unethical methods.
- If the Allied authorities opposed a devaluation favored by the Germans, they would subject themselves to the accusation that they were acting contrary to the interest of Western Germany by keeping her out of competition in world markets through an over-valued exchange rate.
- We are not unmindful of the magnitude of the problem of domestic food prices posed by a devaluation. This problem, however, will have to be faced by the Western German Government sometime and we feel that it would be easier to face it at a time when practically all other European countries are faced with the same problem.”
Please cable your thoughts if any so as to enable Commission to act if necessary at latest over this weekend. Please pass to State and Treasury.2
New subject: Separate cable is being sent you on proposed invitation to the International Monetary Fund.
Fully understood and agreed by British, French and Germans that purpose of IMF technical mission would in no way be connected with immediate problem of establishment of interim conversion factor, but is merely to have on hand expert study by an international body of balance of payments and the conditions affecting financial stability of an area in which Fund members are not only in control but with the condition of which most, if not all, Fund members are deeply interested.
- Documentation on the sterling devaluation on September 18 is in vol. iv .↩
- In another telegram on September 21, Riddleberger reported that the Germans wanted a conversion factor of 23.8. The United States and British High Commissioners were prepared to accept this figure, but François-Poncet had advised Riddleberger that he could not accept a devaluation of more than 15 percent Riddleberger then requested that he be given approval to accept a rate within the latitude of this telegram. (Unnumbered telegram from Bonn, not printed, 862.5151/9–2149)↩