347. Memorandum From the President’s Special Assistant (Rostow) to President Johnson 1


  • Pressure on the Canadian Dollar
[Page 734]

Canadian Finance Minister Sharp saw Secretary Fowler Friday evening to go over the problems facing the Canadian dollar. (His visit to Washington was closely guarded to keep it from the press.)

Sharp said the Canadian dollar had come under pressure because of:

  • —the UK devaluation;
  • —the anticipated effects of the U.S. balance of payments program;
  • —misinterpretation of the U.S. program.

Pressure was heavy in January; it quieted down after issuance of the Treasury statement explaining the limited impact of the U.S. program on Canada;2 and it flared up again during the Canadian Government crisis last week.3 Since January 1, the Government used up $900 million, or 1/3 of its reserves, to support the Canadian dollar.

U.S. consideration of balance of payments trade measures posed an additional problem:

  • Sharp said that if we imposed an import surcharge, the Canadians would have to devalue since they had no feasible way to offset it.
  • —If we imposed a border tax (export subsidy and import surcharge), the effect on their exchange market would probably be manageable, since they have already announced publicly that they would match whatever we did. Nevertheless, Sharp believes that any measure in this area would not be in our interest. It could not benefit our balance of payments very much, and could set off a wave of retaliatory measures whose ultimate effect on trade and confidence no one could accurately foresee.

In appraising the general situation confronting the Canadian dollar, Sharp said that Canada’s cost and price problems were manageable and the Government wanted to avoid devaluation. To maintain the rate, however, it was essential to reverse the growing belief that the Canadian dollar could not hold. He asked Fowler to consider two measures:

  • exemption of Canadian investment from the balance of payments program. Even though the program does not bear heavily on Canada, Sharp said that an exemption would have an important psychological effect.
  • an ExIm Bank line of credit of $1 billion—he said they would not intend to use it but its existence would be strong evidence of Canadian determination to hold the rate.

Sharp said that whatever we could do to help would not be a balance of payments drain for us because of our bilateral reserve arrangement. [Page 735] He argued that the U.S. can neither gain nor lose reserves in dealing with Canada.

Secretary Fowler explained our problems with an outright exemption of Canada from the investment program, asked Sharp to consider what we could do together in the border tax area, and said we would go over their requests and give them an early answer.

We have begun to explore the possibilities of:

  • —an ExIm standby credit as part of a multilateral support operation with the Europeans;
  • —a statement of intent that we would re-examine our investment guidelines for Canada if they were proving to be a serious problem for Canada.

We will have firm recommendations for you after looking into these possibilities.

W. W. Rostow 4
  1. Source: Johnson Library, National Security File, Memos to the President, Walt Rostow. Secret; Sensitive. Drafted by Fried.
  2. Not found.
  3. On December 14, 1967, Pearson announced that he would retire as soon as the Liberal Party chose a successor. The party called a meeting for April 4-6 to elect a new leader.
  4. Printed from a copy that bears this typed signature.