222. Record of Meeting of the National Security Council1
NATIONAL SECURITY COUNCIL MEETING IN CABINET ROOM, MONDAY, NOVEMBER 25, 1968 WITH THE PRESIDENT, SECRETARY RUSK, J. R. WIGGINS, AMBASSADOR TO THE U.N. JOSEPH SISCO, ASSISTANT SECRETARY OF STATE, SECRETARY CLIFFORD, PAUL NITZE, SECRETARY FOWLER, DIRECTOR HELMS, GENERAL WHEELER, GEORGE CHRISTIAN, WALT ROSTOW, BROMLEY SMITH AND ED FRIED—12:06 P.M.
[Here follows a brief introductory discussion of two U.S. reconnaissance planes that were shot down over Vietnam.]
[Page 607]Fowler: The first place we always look to for answers on these things are the Departments. And I think, therefore, I will give you a quick report on what the market situation was as of 11 o’clock this morning which covers most of the trading day in Europe.
The exchange rate, movements and the flow of funds are very faithful because the money is going out of Germany and into France. And the French franc rate is up and the British pound rate is up and apparently this is the result of the real money flow rather than in marketing prevention.
The other significant thing from our point of view is that the dollar is strong and the gold market has remained very calm. Low rise, and high minor rise, in the morning from 30# the first fixing and a decline back to $40.10 in the afternoon. So the first market reactions are good.
As to the impact of the French measures, the details will not be announced until tomorrow, so we get impressions on these from our fellows in Paris the way they feel about these things.
The French exchange patrol measures that were issued last June, and then rescinded later, were fairly mild in form and not particularly effective, but the new regulations have all the markings of being very tough and very effective, as far as releasing money from France by Frenchmen—in other words, out of France.
Just one example. On tourism. Frenchmen can carry abroad $40.00 worth of French francs, and—in French bank notes—and $100.00 of foreign currency. They must carry evidence that they bought the currency from an authorized bank and it is a once in a year allowance.
People moving into France will have to—when you go in you will have to, if you are an ordinary tourist, register the amount of currency you are taking in, so that the effective currency rate is under control.
Characteristically, French exchange control regulations have been very effective in the past when they have been really tough enough, though I don’t think we should underestimate the possibility that for a period of time they may be able to considerably arrest the flow.
The export tax percentage has not been made at all clear. DeGaulle simply said he would relieve corporations of “certain taxes that excessively weigh on their costs.”2 We have no details, but it seems to involve an increased tax rebate of some sort, like our investment credit on import-export taxes.
[Page 608]On imports, nothing special expected. This could be a very effective way of quickly arresting the balance of payments problem, but there’s no sign yet of a rigid issuance of import licenses. France has traditionally resisted import surcharges, that is, adding taxes to imports as being inflationary. And reducing the pressure of foreign competition.
We don’t know what they are going to do in the wage-price field, although the General’s message to the Nation clearly indicated a Hold the Line policy on wages and prices. Whether that would be by any further measures or not, or whether he’s going to wait and see what’s happening, we don’t know.
I think insofar as the United States is concerned—impact on trade—it would be fair to say that what’s happened in Germany, which is advantageous to us, will be adequate to prove to be a counterweight for anything that happens in Great Britain or anything that we see currently likely to happen in France. I would say it’s a standoff and the benefits we receive from Germany would probably just about be offset by the French and the United Kingdom moves.
The overall impact of this that we should note is, of course, that now four of the major economies in the world—United States, United Kingdom, France, and to some extent Germany—are cutting back their growth and this will tend over a time to have some heavy impact on world trade.
Mr. President, I think the further implications for the Security Council would be largely in the political field. There has undoubtedly been a great impact as a result of this situation on Franco-German relationships and on German-United Kingdom relationships.
I think as far as the offset situation, instead of the reduction of their trade surplus being a minus, in view of the statements that Strauss and Schiller made during the course of the meeting, some of which have gotten into the press, it gives us a very firm position—that don’t come around pleading now that because you did this you can diminish your offset and prolong it. One of the prime reasons that they put forward during the course of the meeting for not revaluing at 7–1/2 percent or greatly increasing these grave tax measures was that they needed to have adequate trade surplus in order to make good on a 900 billion dollar offset—the fact that this is something our successors should be made aware of.
President: What is the feeling between the Germans and the French?
Fowler: Considerable. [8 lines of source text not declassified]
There were—undoubtedly this pressure that was felt in the meeting of the Central Bank Governors at Bonn—and the Germans feel that the French put them in a very tough position.
In turn, the French, I think quite properly, feel that the Germans have not done as much as they could or should as partners in this operation. What they would have liked to have done is work out a straight Franco-German [Page 609] deal—a package deal, and neither party—they were not able to work that out.
President: What conceivably could we be called upon to do extra? Put up more as far as France?
Fowler: No. The installment on the credit package. A French request for withdrawal (interrupted).
President: Four or five hundred million more?
Fowler: I don’t think so.
President: Is there anything else that you can foresee that we ought to be planning?
Fowler: We, last night—yesterday, Mr. President, made an appraisal of the French measures, and what we could do in addition to help on this thing.
Bill Martin yesterday afternoon called the head of the German Central Bank, Blessing and ——3 the Head of the Mellon Central Bank, who’s also Chairman of the Ball Group, and Stopper, the Head of the Swiss Bank, and asked them to do what they could do through their organizations to give objective press guidance on the French action of the sort that we are trying to give here. And also to speed up a settling program—that the Central Bank Governments were mandated to do with the BIS on a recycling of check flow—this wouldn’t have any figures or any limit but the idea you see would be to make the gain completely useless. If one—let’s say the Bank of France intervening in the market to protect the franc spent one hundred million and it went into Germany and that could be identified as speculative though the Germans would automatically put that back in the form of some credit arrangement to the Bank of France, so that there would be a kind of a circular flow of funds rather than a drain, an ever increasing drain, which would make the situation impossible.
In addition to those measures, Martin asked Blessing if there were any other measures that he thought the Germans could take to moderate capital outflow. Blessing and Martin have a very good relationship, and I am sure Blessing levelled with him when he said he couldn’t think of another thing they could do.
He called the British Treasury and expressed the desirability of their making helpful noises. He talked to Douglas Allott. The number two man agreed and said they were trying to and would follow our lead on that. They seemed to have mixed emotions. They are very glad there was no franc devaluation, which was what they were deathly afraid of, certainly a major one.
[Page 610]They are concerned over market reactions—probably feel better today after what has happened.
He talked also to Paul Schweitzer, the Director of the International Monetary Fund, who had developed that there was some case for devaluation, but felt that this move was a good move, a gracious move. He did not think the French would apply for a standby credit on the Fund at this time, but was less certain on this than he had been on Saturday afternoon. I think the IMF will make constructive comments, so the most, Mr. President, that we can do at this time, I think, is to try to keep this in an optimistic, favorable framework, this whole suggestion.
President: Is it fair to say that after reading DeGaulle’s speech and after seeing the performance of the market and after talking to the bankers that Martin talked to and the contacts that you all have had, that you think that this is likely to be successful?
Fowler: I think I would say that.
President: And is it fair to assume that you do not anticipate any more serious calls for performance on our part?
Fowler: I hesitate to make a long-term projection on that. I think this thing could conceivably hold and stabilize the situation for months in advance. On the other hand—
President: Well, but I got the impression prior to reading the report4 that before he even took this action, that he didn’t feel that it was going to adversely affect us one way or the other.
Fowler: No, I don’t think that—
President: And that there wasn’t anything much that we needed to do.
Fowler: I don’t think we’re in it—
President: What I’m asking now is, should we pull in our belts, pull up our socks, take any additional steps, make any additional preparation? Look at any measures that we might have to take if we got into an emergency?
Fowler: No. I think that a—as I see it, the situation now, we have done all that we can do or that the minds of all the Ministers of Finance and the Central Bank Governors can conjure up. I think about all I would say on that is I think that over the next 60 or 90 days we ought to keep our situation extremely sound here at home, because the one sustaining element in the whole picture, psychologically, has been the strength of the dollar. Had we been rocking and rolling God knows what would have happened.
[Here follows discussion of Vietnam, several issues before the United Nations, the Middle East, and disarmament questions.]
- Source: Johnson Library, Transcripts of Meetings in the Cabinet Room. No classification marking. The source text, which is a transcript of a tape recording, bears no transcribing or drafting information. The file folder in which the source text was enclosed identified the conclusion of the transcript as 1:18 p.m. Notes of the same meeting, which were probably derived from the same tape recording, cover Fowler’s report on the monetary situation in only a paragraph but provide extensive coverage of the discussion on Vietnam and the Middle East. Although labeled “President Johnson’s Notes …,” more likely they were notes prepared for him. (Ibid.) Draft minutes covering only the discussion of international financial matters at this NSC meeting, dated November 25, are ibid., National Security File, Fried Files, Chron, October 1–November 30, 1968, Box 3.↩
- After the brief announcement by the French Government on November 23 that it would not devalue the franc, on the following evening in a speech broadcast to the French nation, President de Gaulle outlined measures to restore stability to the French currency. An English translation of the speech is ibid., Subject File, Monetary Crisis, November 1968, Cables and Memos, Vol. 1 [1 of 2], Box 22.↩
- Presumably the tape recording was unclear at this point.↩
- Not further identified.↩