840.50 Recovery/4–1249: Circular telegram
The Secretary of State to Certain Diplomatic Offices 1
From State and Treasury for eyes only Ambassadors, Ministers and Treasury Representatives. For your info only. Executive Board of IMF concluded extensive discussion of Western European exchange rates with agreement in principle that a review of the exchange structure of Western Europe is advisable. Procedure anticipated is that Managing Director2 of IMF will shortly undertake series of conversations with Western European members IMF in Europe. Basic feeling is that situation has changed since 1946 and now appropriate for review of rates in consultation with Fund.
US Executive Director3 Fund, after consultation NAC agencies, strongly supported this approach to problem. Position taken US Director summarized briefly as follows:
Important surge postwar recovery concluded and further improvements likely to require stronger efforts. Progress toward internal financial stability now adequate to permit consideration of exchange adjustments. Extremely important avoid development of “price isolation” of European price structure from dollar price structure at higher level for European prices. Fund objective requires effective unity in world price structure. Promotion of European exports to Western Hemisphere becoming more difficult as sellers’ market relaxes in that area. Pressure on cross rates increasing among countries desiring to increase dollar earnings without undue increase in cost of imports from European and related currency areas.
US Executive Director cited statement of Secretary Snyder4 before committee of Congress indicating US Government intent review exchange question with “a number of European countries” with view to suggestion that member countries propose adjustment to IMF, if adjustment is indicated by such review.
He added that Fund should at this time not engage in premature detailed discussion of individual exchange rates but rather seek information and general discussion of desirability of early review existing exchange parities of Western European countries as a group. Canadian Director spoke strongly in expressing largely identical views, sounded particular caution with respect to intra-European payments plans as unduly favoring trade within sterling area and Europe and tending to incorporate high prices into the cost structure of Europe. British, French and Belgian Directors insisted on right of members to hold initiative on exchange rate matters and also stressed danger of speculation should news of Fund review leak. Fund not empowered to [Page 383] require exchange rate adjustment by member countries but right of Fund to initiate such discussions not likely to be successfully challenged.
Emphasize need for utmost discretion in handling foregoing info.