130. Memorandum From Secretary of the Treasury Kennedy to President Nixon1
I am transmitting herewith a memorandum (Annex I) prepared by an interagency group under the chairmanship of Under Secretary Volcker, setting forth your basic options in international monetary affairs.2 The [Page 342] complexity of the issue will require some extended discussion. It may be useful to highlight a few points on which early guidance will be particularly useful.
The document suggests three major alternatives, which are discussed in paragraphs 25 to 50, and summarized in Attachment A.
The principal question for decision arising here is whether we should conclusively rule out any option at this stage.
Assuming that for the present Option I (a series of multilateral negotiations pointing toward a fundamental, but evolutionary change in the existing system) is to be pursued, these negotiating issues either will or may be faced in days or weeks:
- The SDR question: negotiations are beginning on June 27, and we should reach a decision on the amounts that we should propose to be activated for the first five-year period.
- The question of adjustment of exchange rates may be precipitated at any time by a French move; we need guidance on the extent to which we might bring political pressure on one party or another to achieve the desired result.
- A speculative crisis may at any time require additional credit support for the pound, to prevent a further depreciation; Europeans are very reluctant to go further, and additional extension of Federal Reserve short-term credit may ultimately require Congressional funding. What is our attitude?
What should our public posture be on proposals for limited exchange rate flexibility and how is it to be timed and handled?
These issues are discussed in paragraphs 51 to 65 of the attached memorandum.
Also, paragraphs 62 to 65 allude to the fact that payments of gold to the IMF in 1969-71, partly in connection with quota increases, and “nibbling” gold sales to central banks could possibly reduce our gold reserves as low as $8 billion. It is important for negotiating purposes to know whether this prospect is acceptable.
While I hope you will be able to read the memorandum to get the full flavor, I thought it would be useful if we started the meeting on Thursday3 by having Under Secretary Volcker review the main points orally, with the assistance of some charts, before proceeding with the general discussion.
I know you are aware of the sensitivity of some of the material included here, and we have safeguarded copies accordingly.4 Subject to [Page 343] your approval, I believe that the attendance should be kept very limited. The following are now expected to attend:
The Secretary of State
Federal Reserve Chairman Martin
Dr. Arthur Burns
Dr. Henry Kissinger
Dr. Paul McCracken
Budget Director Mayo
- Source: National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 215, Council of Economic Advisers. Confidential. Another copy is attached to Document 131.↩
- The 48-page, double-spaced Annex I, entitled “Basic Options in International Monetary Affairs” and dated June 23, is not printed. An earlier, 33-page version was circulated to members of the Volcker Group as VG/LIM/69-66 on June 19 for discussion in a meeting of the Group on June 21. (Washington National Records Center, Department of the Treasury, Volcker Group Masters: FRC 56 86 30, VG/LIM/62-VG/LIN/70) On June 20 Bergsten provided Willis with written “Comments on Draft Options Paper.” (Ibid., Deputy to the Assistant Secretary for International Affairs: FRC 56 83 26, Basic Options 3-6/69-Confidential; LIMDIS) A revised version was circulated as VG/LIM/69-68 on June 22 for discussion by the Group on June 23. (Ibid., Volcker Group Masters: FRC 56 86 30, VG/LIM/62-VG/LIM/70)↩
- June 26.↩
- On June 23 Under Secretary Volcker sent a memorandum to the six principals listed below to the effect that Secretary Kennedy wanted the existence and contents of the Basic Options paper limited to the recipients, and that all earlier drafts should be destroyed or returned to his office. (National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 215, Council of Economic Advisers)↩
- Confidential; Limdis.↩
- Brackets in the source text.↩