192. Letter From the Vice President of the Deutsche Bundesbank (Emminger) to the Under Secretary
of the Treasury for Monetary Affairs (Volcker)1
Frankfurt, November 12, 1971.
Dear Paul:
Attached please find my understanding of the present situation as concerns
exchange rate re-alignment. You will understand that I could not put in any
more concrete figures; but the attainable magnitudes have now become fairly
clear.
This is, of course, only for your personal information.
With best regards,
sincerely
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Attachment2
The strategic situation on re-alignment
After the meeting of the Finance Ministers of the Six in Versailles on
November 4, the situation regarding further progress has become much
clearer. It can be summed up as follows:
- 1.
- No move can be expected in the gold parity of the French
Franc. This has to be taken—and has been accepted (willy-nilly)
by the Six—as an immovable corner stone of any future
arrangement. However, in the case of a downward adjustment of
the dollar parity, the French are prepared to maintain their
present gold parity, or in other words, to tolerate a de-facto
appreciation in relation to the dollar (this has been told by
Giscard d’Estaing,
although indirectly, even to the press).
- 2.
- The French Franc will serve as a “leading indicator” (or
example) for the exchange rate policies of Italy and Britain.
Neither of the two is prepared to move its parity up in relation
to the Franc (which they, rightly, consider to be inherently
stronger than their own currencies). Both these other countries
seem, however, to be prepared to maintain, in case of a downward
adjustment of the dollar, their previous parity, provided the
French do the same. Some other European countries are likely to
take their cue, too, from the French Franc (plus the Lira and
the Pound).
- 3.
- The readiness of the French to stay put as concerns their gold
parity depends, of course, on the amount of the downward
adjustment in the dollar parity. No one could at present say
whether the “threshold of tolerance” is 5 or 6. There are,
however, enough signs to the effect that the tolerance level
would be high enough to permit an average shift between the
dollar and the other G 10 currencies (incl. the Swiss franc) of
9 to 10%. The exact magnitude of the French “tolerance level”
can only be found out once it is assured that the dollar itself
moves.
- 4.
- A de-facto appreciation of the French Franc in the foreseeable
magnitude would in all probability allow the German DMark to be
raised sufficiently high vis-à-vis the dollar, while attaining a
more reasonable relationship vis-à-vis the Franc and other
important European currencies. This would then also permit to
bring the Japanese Yen into the proper line, viz. a fairly high
appreciation in
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relation to the dollar, a more moderate upvaluation in relation
to the main European currencies.
- 5.
- If on the American side there were no readiness to reduce the
dollar parity, then the whole negotiating process would get
stuck. It is simply erroneous to believe, that a German-French
tête a tête could in any way break the deadlock. Even if it were
to lead to an agreement on the future relationship between the
DMark and the Franc (which would certainly be on a lesser
disparity than at present), there would be no way from there to
a satisfactory collective agreement on the re-alignment
question.
- 6.
- It is, therefore, a misjudgment to believe that a
German-French summit, if it preceded the G 10 meeting, could do
much good for the latter. Ideally, the time sequence should be
reversed: If the G 10 meeting should end in visible failure,
then a subsequent German-French meeting might perhaps lay the
foundation for a regional (European) monetary set-up.
