58. Memorandum From President Kennedy to Secretary of the Treasury Dillon and the Under Secretary of State (Ball)0

The visit of French Finance Minister Giscard d’Estaing to Washington last month1 and events and discussions here and abroad consequent on it have raised the question of whether the time is not ripe for a more explicit understanding among the major European countries and ourselves on international monetary matters. After a series of discussions among us culminating in our meeting of August 20,2 it now appears useful [Page 142] to take at least the first step of making soundings with the French, and others as appropriate, on the possibilities in this direction. Accordingly, you should each send your agreed representative, Assistant Secretary John Leddy, Department of the Treasury; and Assistant Secretary G. Griffith Johnson, Department of State; to Europe as soon as possible to make these soundings on a discreet basis with the following instructions.3

The purpose of making an arrangement is to strengthen confidence in the dollar, limit unnecessary foreign takings of U.S. gold, and strengthen the system of international monetary cooperation. To this end, discussions should begin with the French to see what they had in mind and whether and how they are preparing to carry forward their initiative. Discussions should also be held with the French and then, as appropriate, with others regarding the proposed “Declaration of Ten” (Section III of the Treasury’s Program for Further International Monetary Action),4 including means of increasing the automaticity of access to the IMF special resources.
Any interim arrangement—pending international consideration of long-term improvement in the international monetary system—should be a voluntary one undertaken on European initiative. Care should be taken to avoid the appearance of pressure from the U.S., since the belief that such pressure existed would be confidence-destroying rather than confidence-creating. The U.S. representatives shall not indicate that the U.S. might agree to any specific reciprocal concession or commitment which may be proposed.
One acceptable arrangement would entail the Six and the British exploring among themselves their practices in holding gold as part of their reserves. The starting point for these discussions might be a mutual recognition of the fact that each country will expect to maintain some basic “hard core” of its reserves in the form of gold, but that maintenance of a viable monetary system depends upon a mutual effort to economize in the use of gold for the remaining portion. Attention would thus be turned toward the absolute volume of desired gold holdings, rather than toward the potentially more intractable question of ratios. Mutually understood guidelines for the total gold holdings of each would then minimize pressures for competitive takings from the United States, and set an outer limit of, say, not more than $1 billion on their potential increases in gold holdings over the next two years, including any amount picked up from newly-mined gold as specified below.
The possibility of using the present holdings of each country (Germany, $3-3/4 billion; UK, $2-1/2 billion; France, $2-1/2 billion; Italy, [Page 143] $2-1/4 billion; Netherlands and Belgium, $1-1/2 billion each) as broadly acceptable guides over some interim period should be canvassed. These amounts might need to be modified to reach agreement, so long as the maximum increases envisaged remain within the $1 billion limit cited above. The French could presumably take the lead by reaffirming their own target for holding approximately three-fourths of a maximum of $3-1/2 billion of reserves in gold, but each country would need to make clear to the others its target and policies.
These mutually understood guidelines should provide a basis for distributing the proceeds of any gold acquired through joint purchases in the London gold market, with any other sales or purchases of gold to be effected directly through or with the U.S. rather than through the London market.
Increase in gold holdings consistent with the guidelines should be undertaken only in response to sustained additions to total reserves.
Alternatively, the arrangement might take the form of an understanding among the Six and the UK to hold increased reserves largely in dollars and only to a limited extent in gold in order to achieve an appropriate balance in the distribution of gold holdings between the U.S. and other countries. To be helpful the arrangement should be such as would not be likely to result in takings of gold in excess of (30% of the over-all U.S. deficit) (one-third of increased reserves) ($500 million per year). If the amount is much larger than this, it would not be confidence-producing. It would be understood that this amount would include any amounts acquired through joint purchases in the London gold market. Further, it would be desirable under this arrangement for any European deficits to be settled partly in gold.
It is desirable to avoid conditions in the understanding designed to increase the gold ratios of particular countries; e.g., Germany and Italy.
John F. Kennedy5
  1. Source: Kennedy Library, President’s Office Files, Treasury, 8/62. Confidential; Limited Distribution. Also sent for information to the Chairman of the Council of Economic Advisers. Copies were sent to Sorensen, Bundy, Kaysen, and Bell.
  2. President Kennedy met with Giscard d’Estaing at the White House on July 20 from 10 to 10:51 a.m. (Kennedy Library, President’s Appointment Books) No record of their conversation has been found. A memorandum of Acting Secretary of State Ball’s conversation with Giscard at 6 p.m. the same day is printed in vol. XIII, pp. 731735.
  3. No records of these discussions have been found, but, as a result of the discussion at the August 20 meeting, President Kennedy directed the formation of two committees on international monetary problems, chaired by the Department of the Treasury. He also asked Treasury, through the machinery of the Cabinet Committee, to prepare by September 15 an analysis of the steps undertaken to bring the balance of payments into equilibrium by the end of 1963 and an estimate of the probable degree of success. (Memorandum from Kaysen to Dillon, Ball, and Heller, August 20; Kennedy Library, National Security Files, Balance of Payments, International Monetary Agreement, 8/62)
  4. For the report by Leddy and Johnson, see the attachment to Document 59.
  5. The Treasury’s Program has not been found. For a draft of the declaration, see the enclosure to the attachment to Document 59.
  6. Printed from a copy that bears this typed signature.