121. Telegram From the Department of State to the Embassies in Belgium, the Netherlands, Italy, Sweden, and Switzerland 1

56540 1. During his recent discussions in Europe, Treasury Under Secretary Volcker indicated to key monetary officials (including Snoy and Ansiaux, Witteveen and Zijlstra, Wickmann and Joge, Stopper and Carli) that U.S. would be willing to explore bilaterally at technical level, problems involved in suggestions concerning limited increase in exchange rate flexibility.2 Following proposal was put forward, in varying detail:

It is to be understood that U.S. Government has not as yet developed an official view on any of these suggestions, or on general question whether any formal or informal change is required in present exchange rate regime. At same time, interest in these ideas is sufficiently widespread so that we believe careful exploration of some of issues involved is desirable. Our interest at this stage is in elucidation, at technical staff level, of technical and policy issues that would be posed if any such changes were to be decided upon. Object would be to increase our understanding of issues involved, and to obtain some indication of tentative views of authorities of important countries, as input to reaching official U.S. views of these ideas.
We would be glad to engage in series bilateral technical talks on these questions, in great secrecy, if authorities these governments would find it useful. Have no wish to press if authorities are not interested. Same offer being made to all G-10 countries.

2. Our impression is that most if not all G-10 countries will wish to accept offer if they are satisfied talks will be adequately protected against leaks. Extraordinary care should be taken to limit knowledge of this offer to those with absolute need to know.

3. As means of implementing our proposal request addressee posts review foregoing with D’Haeze, De Strycker, Van Lennep and Kessler, [illegible], and Joge, Leutwiler and Ossola (Palumbo if Ossola thinks [Page 318] advisable) and indicate that if government wished pursue such studies, our feeling is useful way to conduct talks would be for one or two teams of U.S. Treasury and Fed technical personnel (one each) to visit host authorities in near future. We envisage discussions as being distinctly below level of Deputies or Alternate Deputies. U.S. technical people will be prepared for visit as early as week of April 21. We envisage talks would require about one full working day per country, though perhaps some leeway might be left for a little more. If at conclusion of this discussion discussants feel a second round would be useful, arrangements could be made for foreign discussants to visit Washington for this purpose at some time during May. We hope to finish any such bilateral technical talks before end of May.

5. As background material for discussion, we would suggest three IMF staff papers which host authorities (except Switzerland) should have, or which we prepared supply. These are DM/69/2, Fleming paper on wider margins; DM/69/4, Hirsch paper on sliding parities; and DM/69/10, Kuczynski paper describing various sliding parity proposals.3 In addition, we would supply series of annotated questions on which we believe it would be useful to center discussion.

6. If authorities are interested in proceeding on this basis, would appreciate indication of date or dates when could be ready for visit of U.S. technical personnel, and, if available, name(s) of host persons who would participate in discussion. Widman, Treasury, will coordinate schedule. (FYI. Would you see any disadvantages in having team visit four or five countries in sequence?)

For Rome: Re Ossola’s views reported Korp-Willis letter April 3,4 Washington visit by BOI official suggested by Ossola could be in lieu of Rome visit by U.S. team or could follow team’s European tour, at option of Italians. Inclusion in talks of a second Italian expert from BOI Foreign Exchange Dept. also optional with Italians.

  1. Source: National Archives, RG 59, Central Files 1967-69, FN 10 4/l/69. Confidential; Limdis; Greenback. Drafted by William Dale; cleared in Treasury by Widman and Willis (in draft), in the Federal Reserve by R. Wood, in the Council of Economic Advisers by Wonnacott (in substance), and in State by E. Heginbotham (E/IMA); and approved by Robert M. Beaudry (EUR/NSC-IG).
  2. Pursuant to discussions between Volcker and French Director of the Treasury Rene Larre, arrangements were also being made for consultations with the French on limited exchange rate flexibility. The talks would take place on the fringes of an April 24-25 meeting of the OECD’s WP-3 that would provide cover for U.S. officials’ travel to Paris, minimizing the possibility of press leaks. (Telegram 58690 to Paris, April 16; ibid.)
  3. DM/69/2 is a paper by J. Marcus Fleming entitled “Wider Margins of Exchange Rate Variation,” January 8, circulated to members of the Volcker Group as VG/WG/69-8. DM/69/4, a paper by Fred Hirsch entitled “The Usefulness of Small Changes in Exchange Rates in the Case of Industrial Countries,” January 9, was circulated as VG/WG/69-9. DM/69/10, a paper by Michael Kuczynski entitled “Proposals for Small and Perhaps Frequent Changes in Par Values,” February 3, was circulated as VG/WG/69-20. (All in Washington National Records Center, Department of the Treasury, Volcker Group Masters: FRC 56 86 30, VG/WG/69-1-VG/WG/69-22) The VG/WG (later VG/WG I) series of Volcker Group papers pertains to the Working Group of the Volcker Group that worked on limited exchange rate flexibility. The WG papers were also circulated to members of the Volcker Group in the VG/INFO series. The DM series numbers were given to papers by the IMF staff.
  4. Ralph V. Korp, Treasury Attache at the Embassy in Rome. The April 3 letter was not found.