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.
