1. Summary of the Report of the Task Force on U.S. Balance of Payments Policies1
The present U.S. balance-of-payments position is very precarious. Serious deterioration in the nation’s trade accounts is being temporarily camouflaged by a combination of window-dressing special transactions and an abnormal inflow of foreign capital.
Existing balance-of-payments controls should be rapidly eliminated because they are wasteful and inefficient, undermine our free enterprise system, and thus reduce the rate of growth in the economy. Their dismantling is further indicated because whatever short-run payments relief they may have afforded in the past, they are now beginning to have a delayed adverse effect. Diplomatic efforts aimed at inducing other countries to hold more dollars than they normally would also should be terminated.
Given the present underlying weakness of our payments position, severe foreign-exchange pressures against the dollar could develop quickly. A series of protective actions is therefore necessary, involving the pursuit of disinflationary economic policies domestically and simultaneous reform of existing international monetary arrangements.
With respect to reform, confidential negotiations with the key industrial countries through the Group of Ten should begin immediately, with the main American objective being to secure quickly a significant realignment of parities of some currencies. To provide continuing flexibility in the international monetary mechanism, this one-time realignment should be accompanied by:
- The establishment of wider permissible trading bands for currencies under IMF rules (with fluctuations on either side of par to range up to 2 percent or 3 percent, instead of the present 1 percent maximum).
- The provision for automatic adjustments in parities by small amounts in instances where a currency remained at the upper or lower end of its band for some specified time period.
Discussion aimed at providing wider bands and self-adjusting pegs should proceed even if significant one-time realignment of Group-of-Ten currencies cannot be successfully negotiated.
Such reform in itself would not solve the problem of outstanding dollar balances, and consequently the present de facto inconvertibility of the dollar into gold would continue. Nevertheless, a general increase in the price of gold should not be undertaken because its benefits would be distributed very unevenly and inequitably and because it would tend to fuel international inflationary tendencies.
Continuation of de facto inconvertibility of the dollar into gold need not be a crucial problem so long as visible progress is being made by the United States in pursuing domestic policies that promise reduction of new infusions of dollars into the international economy and so long as flexibility is imparted to the international monetary mechanism. Foreigners recognize that any large-scale attempt to convert dollars into gold would disrupt international trade and payments and would lead to an immediate American embargo on gold exports. If for any reason this premise proves false and a “gold rush” develops, the United States should suspend gold convertibility before our gold stock declines very much below its present level. Such suspension would not necessarily lead to a radical depreciation of the dollar on international exchanges. Instead, it is likely that many countries would continue the policy of pegging their currencies at the existing parities to the dollar. In a period of transition during which convertibility was suspended, negotiations aimed at introducing new flexibility into the international monetary mechanism could proceed.
- Source: National Archives, Nixon Presidential Materials, Transitional Task Force Reports 1968-1969, Task Force Summaries (Arthur F. Burns, 1/18/69). No classification marking. Forwarded to the President-elect under cover of a January 18 letter from Arthur F. Burns in his capacity as Chairman of the Program Coordination Committee. Burns’ letter is on the stationery of the Office of the President-elect and bears a New York address. The undated, 33-page Report of the Task Force on U.S. Balance of Payments Policies, chaired by Gottfried Haberler, is ibid., Task Force on U.S. Balance of Payments Policies.↩