119. Letter From Secretary of the Treasury Fowler to the German Minister of Finance (Schiller)1
Dear Mr. Minister:
Ever since our meeting in England in January,2 I have been looking forward to an opportunity to have some conversation with you on various subjects that could not be considered during our limited time at Chequers. I had hoped that an occasion would present itself when you might visit Washington and we could have adequate time for such discussion. I still look forward to that possibility, hopefully in the near future, but meanwhile I feel it desirable to write you briefly about the state of negotiations on new international liquidity.
We are now entering a critical phase in these negotiations on a plan for reserve creation. The Finance Ministers of the European Economic Community will shortly be meeting on this matter. On April 24–26 in Washington the third Joint Meeting of the Executive Directors and the Deputies will be a crucial negotiating session.
Professor Walter Heller will be seeing you on April 11, in Germany. I know he will be discussing this subject with you then and I want to set down briefly some of my thoughts. Professor Heller, as a member of our Advisory Committee on International Monetary Arrangements, is, of course, conversant with our views on these matters.
As you know, it is our very earnest desire to see the Governors of the International Monetary Fund, at their Annual Meeting in September 1967, approve the structure and major provisions of a plan for reserve creation in a form that will really meet the reserve needs of the world in the future. To do this, it will be necessary that the negotiations of the next few months be pressed forward by all parties, so that an adequate consensus on a plan can be achieved by the summer months.
It would be most unfortunate if the thorough and intensive work done on this matter since the Fall of 1963 by the Deputies of the Group of Ten, and in the International Monetary Fund, should fail to provide us with an acceptable plan. I am concerned that this result would lead to grave consequences in the future evolution of the monetary system and in the financial relationships of Europe and America. This I most urgently wish to avoid. The attitudes taken by the Governments of the [Page 345] EEC countries, and especially that taken by your Government, will play a central role in determining the outcome.
As I see it, the world needs to be assured that a plan exists which can provide for an adequate supplement to existing reserves over the years ahead. In this way we can avoid the uncertainties that promote instability in gold and exchange markets, and we can provide an essential sustaining element to the forward march of economic growth and world trade.
In my judgment, the best way to accomplish this purpose is through a proposal for a reserve unit. The Outline of an Illustrative Reserve Unit Scheme circulated in the Fund under date of February 23, 1967,3 has many of the characteristics I believe necessary for a convincing plan, although I do not subscribe to every specific aspect of that scheme. That is, I feel the Fund is on the right track in providing an unconditional asset that is directly and independently transferable and not tied to gold or other assets, and with fully segregated accounting and resources. I believe I would favor using somewhat modified procedures on holding and use of the asset, and I certainly would eliminate the compulsory use of new assets to repay in advance outstanding drawings from the Fund. But, in broad outline the Illustrative Scheme seems to me to be a good one. The Fund’s plan was discussed at the Deputies meeting of March 30–April 1, 1967 at The Hague, and some changes were suggested at that time. It will come in for further detailed discussion at the April 24–26 Joint Meeting.
There have recently been suggestions that a drawing rights plan might be developed having the same essential characteristics as the reserve unit plan described above, including unconditionality, non-repayability (to ensure its status as a permanent reserve asset), adequate provisions for acceptance, segregated accounting and resources, and reasonable convenience and visibility in use through direct transferability. The Fund itself, in its alternative illustrative plan for drawing rights, attempted to design a drawing rights scheme that would be fully equivalent to its reserve unit scheme. I believe that many of the Deputies share the view that this attempt fell short of a really effective plan for reserve creation.
I am told that the EEC Ministers may be seeking agreement on a plan for new reserve creation at their April 17 meeting. My great concern is that proposals might be put forward that fall far short of what is needed. Should that be the case, there would be little prospect of reaching the goal [Page 346] which is of such high importance for both our countries and for the world as a whole.
As you know, the President has indicated the importance we attach to these negotiations in his recent letter to the Chancellor.4 Vice President Humphrey is also stressing their importance in his conversations in Europe.5
Should you feel that it would be useful to pursue this subject further, in addition to your forthcoming conversations with Professor Heller, Under Secretary Deming could undertake to come to Germany. As you know, he has the primary responsibility for this subject in the Treasury and is our principal spokesman in the meetings of the Deputies of the Group of Ten.
I should appreciate having your own assessment of these important forthcoming negotiations.
Sincerely yours,
- Source: Johnson Library, Bator Papers, McCloy Trip, June 1967, Box 8. Confidential; Personal. Attached to Document 124. Copies of this letter were distributed to members of the Deming Group as DG/67/91 on April 6. (Washington National Records Center, RG 56, OASIA Files: FRC 75 A 101, Deming Group)↩
- See Documents 113, 115, and 116.↩
- Text in Margaret Garritsen de Vries, ed., The International Monetary Fund, 1966–1971: The System Under Stress (Washington: International Monetary Fund, 1976), vol. II, pp. 15–23. The IMF paper was distributed to members of the Deming Group as DG/67/62 on February 24. (Washington National Records Center, RG 56, OASIA Files: FRC 75 A 101, Deming Group)↩
- Reference may be to President Johnson’s March 11 letter to Chancellor Kiesinger; see Foreign Relations, 1964–1968, vol. XIII, pp. 546–549.↩
- Vice President Humphrey visited several European countries March 28–April 8.↩