178. Memorandum From the Executive Secretary of the Department of State (Eliot) to the President’s Assistant for National Security Affairs (Kissinger)1


  • Foreign Reactions to the President’s Economic Program-Afternoon September 24

Foreign official views (probably in part substantive and in part tactical on their part) about the international monetary situation as reflected at last week’s meeting of the Group of Ten Finance Ministers2 are: (1) the US adjustment goal of a $13 billion turnaround, largely on trade, is too ambitious, particularly in the relatively short time frame of a year or two; (2) the general realignment of exchange rates should include US action to devalue the dollar; (3) the US import surcharge should be eliminated; (4) fixed rates should be quickly reestablished. Some countries, notably Italy and Japan, urged improvement in the international monetary system through greater reliance on Special Drawing Rights (SDR’s). The Group of Ten will meet again in Washington on September 25 at the Deputy level and September 26 at the Ministerial level, in preparation for next week’s IMF meeting.

At the G-10 meeting, the Managing Director of the IMF, Schweitzer, suggested a procedural approach consisting of dividing the issues into three groups to be dealt with in stages: (1) realignment of exchange rates, relationship of currencies to gold, wider margins of fluctuation around par rates, and abolition of the US surcharge; (2) balance of payments adjustment measures other than exchange rates, such as defense burden sharing arrangements, future type of convertibility, and methods for handling flows of capital; (3) the future role of reserve currencies and other questions relating to basic reforms of the international monetary system. Secretary Connally noted that the United States did not agree with this approach and the placing of issues into separate groups.

Governor Wormser of the Bank of France believes that an early settlement of the monetary crisis is essential to avert a worldwide recession and that there are only five or six months to negotiate a long term solution. Otherwise, he believes, the world economic situation will [Page 500]deteriorate markedly, with increasing national restrictions on trade and payments coming into being, partly in response to the US surcharge.

This week’s meeting of the EC Council of Ministers (September 20-21) concluded that there was no need at this time to revise positions on the US economic measures. The French and Germans stressed the dangers of retaliation and no active consideration was given to retaliatory or compensatory measures at this time. The Community intends, however, to watch the evolution of the situation closely in order to adopt “any new decisions which may appear necessary”.

Our Embassy reports that large segments of Japan’s business community, especially the trading companies, favor unilateral Japanese action to revalue the yen. The Bank of Japan and the Ministry of Finance are reported as resisting this pressure on the grounds that Japan should wait for further multilateral movement. Government officials believe any unilateral action to revalue the yen now would be treated by others merely as an opening bid.

The dollar weakened further today and the major trading currencies reached their highest levels since the floats began. The Deutschemark rose to nearly 10 percent above par following reported purchases yesterday by the German Central Bank of more than $100 million in the spot and forward markets.

Further memoranda in this series will be submitted as warranted by developments.

Parker W. Borg 3
  1. Source: National Archives, RG 59, Central Files 1970-73, E 1 US. Confidential. Drafted by R.J. Smith and L.J. Kennon (E/IFD/OMA) and cleared by S. Weintraub (E/IFD) and Katz (E).
  2. The G-10 Ministers met in London September 15-16; see Document 175.
  3. Borg signed for Eliot above Eliot’s typed signature.