192. Letter From the Vice President of the Deutsche Bundesbank (Emminger) to the Under Secretary of the Treasury for Monetary Affairs (Volcker)1

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,


Otmar Emminger
[Page 534]


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:

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).
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).
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.
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 [Page 535]relation to the dollar, a more moderate upvaluation in relation to the main European currencies.
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.
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.

  1. Source: Washington National Records Center, Department of the Treasury, Files of Under Secretary Volcker: FRC 56 79 15, Germany General. Personal. An attached note, dated November 16, reads: “Informed by Mr. Bennett that he has been instructed by Mr. Volcker to give Dr. Emminger an oral answer in Paris this week.” No record of Volcker’s answer was found.
  2. No classification marking.