NAC Files, Lot 60D137, Box 362

Minutes of Meeting No. 146 of the National Advisory Council, Washington, January 19, 1950


[Here follow list of persons present (29) and prior discussion. Secretary of the Treasury Snyder was in the chair. The Assistant Secretary of State for Economic Affairs (Thorp) and his Special Assistant, Mr. Leroy D. Stinebower, were present for the Department of State. Mr. Frank A. Southard, Jr., was present as United States Executive Director on the International Monetary Fund.]

Mr. Southard added that we were dealing with a proposal for a permanent institution1 and that it must be considered whether, both in terms of the Fund and of other broad United States objectives, the possible gains from the proposed institution would adequately offset the risks involved for us. His own view was that it was impossible to evaluate the clearing union proposal as a forerunner of a genuine union until the European countries were prepared to state that union was their objective and that in their view this device for monetary union was an element in a total program for union. The proposal had to be evaluated in terms of ultimate objectives rather than primarily as a transitional device. Mr. Southard continued that the plan provided as the incentive for maintaining the proper emphasis on dollar trade what seemed to be primarily a gold standard device, namely, dependence on movement in gold balances. He thought this was a very feeble reed to offer as the main resource to prevent the creation of a strengthened soft currency area which might permanently discriminate against dollar trade. The inclusion in the union of sterling area countries, many of which were foods and raw materials producing countries, increased the risk rather than decreased it.

Mr. Southard continued that United States sponsorship of this device ran the risk of misleading the rest of the world into believing [Page 820] that we favored a regional approach rather than an international approach to the solution of problems. He pointed out that in other parts of the world, including Latin American and Moslem countries, there had been very specific proposals for clearing unions. These proposals did not seem appropriate for those areas, and in the case of the Latin American proposal the Council had taken an action expressing that view. However, it would not be too easy to say that a clearing union proposal made sense in Europe and not in other parts of the world. We might also find that if we contributed not only our talent but also our money to such a European clearing union it would be difficult to explain why there should not be similar contributions to clearing groups elsewhere in the world.

Mr. Southard added that he thought that United States sponsorship of the proposal would gravely weaken the agencies which were still struggling with an international approach to the problem of convertibility. It would weaken our influence and therefore the agencies themselves, including the Fund, GATT, and ITO.

Mr. Southard continued that there had been three chapters in the history of European relations with the Fund. In the first chapter the Europeans had decided they did not want a Fund with much power. We had spent most of our energy in the Fund trying to break down that concept. The second stage was marked by the ERP decision, where we removed the Fund for the duration of the ERP from the provision of dollar assistance. We had allowed the Europeans to challenge us with being indifferent to European problems in that regard. We were now in danger of having a third stage in which we would help the Europeans to set up an institution which would make it seem that the Fund would have no voice. Mr. Southard thought there was no way of reconciling the ECA proposal with our obligations to the Fund. We would participate in decisions to provide funds to make the same kind of advances that the Fund was designed to make. Although a superficial liaison for consultation and ratification could be set up, this would be merely a face saving device, and would be no more meaningful than had been the consultation on exchange rates in the fall of 1949. He concluded that his opposition to this proposal and the statement that there was no way of reconciling it with the Fund did not mean that the United States would have to oppose any possible arrangement by Europeans. There was no reason to believe that with respect to other plans we might not work out appropriate relations with the Fund and with other United States policy objectives.

[Here follows other discussion of the proposed European Payments Union.]

Mr. Thorp said the State Department had a real concern in supporting steps that look in the direction of closer working together [Page 821] with European countries. He would not defend the proposal as one inevitably leading to or involving commitments to Europe’s integration. He thought it did, however, constitute a move in that direction. He would be inclined to put justification on the basis that there was a real advantage to steps which break down the barriers within the European area itself. He pointed out that this was a problem we had faced in connection with Article IX of the Anglo-American Financial Agreement. The question raised was whether we were not leading to a soft currency area by allowing Britain to discriminate. He thought that at that time we came to the conclusion that as long as the soft currency area was being narrowed (and devaluation tended in this direction) there was a real benefit in increasing competition within that area and we would be prepared to support arrangements that would tend to break down barriers within the area. The objective would still be to break down all trade barriers. The State Department saw no reason why the same logic could not be used in defending this proposal, particularly on the basis of its being an immediate device for meeting an immediate situation. He had not thought of the union as necessarily being a permanent institution. He did not think it was necessary to make that decision now. The permanent institution might be a federation in Europe. There were more small indications of movements in that direction than previously. If one thought of the union as a temporary arrangement carrying out operations parallel to those the International Monetary Fund carries out, but is not doing for Europe at present, that kind of responsibility might well revert to the Fund after 1952 when ECA had withdrawn from Europe. He said that no one wanted to take a position that would undercut or destroy the Fund but he was not sure that necessarily followed from the current proposal. He thought there could be limitations on time or limitations on authority that would permit the Fund to feel the union was something supporting its objectives rather than being a competitive organization.

[Here follows further and lengthy discussion of the question.]

  1. i.e., the proposed European Payments Union.