NAC Files, Lot 60 D 137

Draft of Minutes of Meeting No. 171 of the National Advisory Council, Washington, March 28, 1951


[Here follows list of persons present (22). Mr. Herbert E. Gaston, Export-Import Bank, was Acting Chairman. Representing the Department of State were Assistant Secretary Thorp, Mr. Orville J. McDiarmid, and Mr. J. J. Stenger. Others mentioned in this extract include: C. Dillon Glendinning, NAC Secretary; Mr. Frank A. Southard, United States Executive Director on the International Monetary Fund; Mr. M. S. Szymczak, Board of Governors, Federal Reserve System; and Mr. Harlan Cleveland, Economic Cooperation Administration. Prior agenda items were discussed.]

3. Appreciation of Currencies

Mr. Glendinning said that the Staff Committee regarded this problem as a serious one. It was timely because a cable received that morning had indicated the Swedes may be thinking of appreciating their currency. There had also been intimations that other countries such as Australia may be thinking along the same lines. It was conceivable that a number of countries might consider manipulating either a unitary rate or multiple rates to take a short-run advantage of the current [Page 1590] situation. Apart from correcting a balance-of-payments disequilibrium through an exchange adjustment there appeared to be two possible reasons why countries might wish to appreciate their currency, namely as an anti-inflationary device in lieu of internal measures or as a means of manipulating the terms of trade in their favor. The Staff Committee had recommended the four point action contained in NAC Document No. 1117.1

Mr. Gaston inquired whether this was a statement of position to be communicated through the Fund and through U.S. Missions abroad. Mr. Glendinning said that the Staff had considered this was a statement in a form which could be transmitted to Embassies and be generally available in the United States Government as well as for the use of the U.S. Executive Director.

Mr. Southard said he had felt from the beginning that it was extremely important for the United States, and the Council in particular, to come to this kind of view. He did not know when countries might come to the Fund with proposals for appreciation. When they did so it would probably be over a weekend when it would be difficult to get an expression of United States views. It might also be difficult to persuade a country not to come in with such a proposal. He thought that if a statement of this kind could be transmitted to Embassies where the problem was becoming a part of official conversations it would be very useful.

Mr. Szymczak suggested it would be desirable to delete the reference to “widespread” appreciation in the first sentence of the proposed action. He thought this weakened the United States position and that our assumption should be there should be no appreciation of currencies. Mr. Thorp suggested that if this were done the word “any” likewise should be deleted from the sentence. He asked, however, whether it would be clearly understood that there might be individual situations where appreciation might be considered on its merits. Mr. Szymczak thought that paragraphs 2, 3, and 4 covered the possible exceptions. It was agreed that the first sentence should be reworded to read “The National Advisory Council does not consider that appreciation of currencies is justifiable at this time, subject to the following:” It was also agreed that numbered paragraphs 2, 3, and 4 would be lettered, a, b, and c to follow this initial statement.

Mr. Cleveland asked what the procedure would be. The statement would go to the Embassies and to the U.S. Executive Director on the Fund. Would they take the initiative in making this statement known to other governments? Mr. Thorp did not think these officials would be instructed to take the initiative but he would expect the Embassies and the ECA Missions would know if this question were being considered [Page 1591] by foreign governments and then it would be appropriate for them to take this position. We would not suggest to a country that it should be thinking of this problem, but the statement would be an instruction as to the line the United States officials should follow if the matter were raised. Mr. Southard added that he would not announce this policy in the Fund of his own accord unless someone else raised the general problem for consideration.

Mr. Cleveland said that he had some question as to the desirability of a statement as general as this being used by United States officials all over the world. He would prefer to have them report back when conversations on this topic were initiated so they could receive instructions. Mr. Southard thought we could take the risk of the statement’s being blunt and general. If countries were considering appreciation this policy statement would make them rethink their position. Mr. Cleveland said that what he was suggesting was that it would not necessarily be appropriate for representatives abroad, at the first intimation of appreciation of currencies, to put this statement in the form of a note and lay it before the other government. Each case was a special case and he did not think this statement constituted a decision for all cases. Mr. Southard thought that the document admitted all types of exceptions that could be economically justified. Mr. Szymczak added that it was a delicate situation but it was necessary to meet it head-on.

Mr. Gaston asked whether the Council approved the statement as a policy to be communicated to officers of the United States. The recommendation as amended above was adopted unanimously.

Action. The following action was taken (Action No. 459):

The National Advisory Council does not consider that appreciation of currencies is justifiable at this time, subject to the following:

It strongly opposes currency appreciation being undertaken by any country primarily as a means of gaining advantage from the current strong international demand for its raw materials and other exports, thus exploiting the situation created by the present rearmament program.
Appreciation could be considered only if such action were necessary to restore equilibrium in balances of payments. There is a very strong presumption against such justification being established in the case of countries receiving extraordinary grant assistance from the United States for balance-of-payments purposes, and also in the case of countries which are maintaining restrictions on trade or payments for balance-of-payments reasons.
In all cases where appreciation may be proposed as an anti-inflationary device, the alternatives should be thoroughly explored to see whether they are not more appropriate than appreciation under current conditions.

  1. Dated March 27, p. 1583.