200. Editorial Note

On or about November 18, 1971, the Office of Management and Budget and the Department of the Treasury circulated papers proposing negotiating strategies to resolve the international monetary impasse. A copy of the 8-page OMB paper, dated November 16 and entitled “Tactics for an Early Conclusion of the Surcharge Round,” was sent to Kissinger on November 18 at the request of Director Shultz. The OMB paper has three attachments. Haig forwarded the paper to Kissinger under cover of a handwritten note that reads: “Shultz cut at surcharge round.” (National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 356, Monetary Matters) In a November 20 note from Coleman to Kissinger regarding the paper’s disposition, Coleman offered four options: “Send to Staff, File, Hold, Other.” Kissinger checked the Hold option and wrote “This is HIGHLY sensitive—as are all monetary matters. Please put in separate file.” (Ibid.) Hormats summarized the OMB paper for Kissinger in a November 22 memorandum. (Ibid., Box 376, President’s Economic Program)

The undated, 21-page Treasury paper is entitled “Proposed Approach Toward Monetary-Trade-Burden Sharing Negotiations Over the Next Month.” It is accompanied by a “Scenario” paper and Attachments A-I. A handwritten note on the paper reads: “From Secretary Connally. Copy sent to HAK in NY 11/20/71.” (Ibid.) Another copy of the Treasury paper is accompanied by a November 22 memorandum from Hormats to Kissinger entitled “Monetary-Trade-Burden Sharing Negotiations,” which expressed the opinion that the paper was a reasonable attempt at a position to remove the surcharge. Hormats recommended that “the main elements to stress are that the surcharge is a wasting asset and that the longer it is on the greater the likelihood that other countries will compensate economically, that retaliatory measures will take place, and negotiations for its removal will be more difficult.” (Ibid., Box 356, Monetary Matters)

Both papers look to significant exchange rate realignments and trade and burdensharing agreements. Neither considers restoring convertibility.OMB adheres to the President’s directive that there be no increase in the price of gold (see Document 189), but Treasury, with a view to France as the greatest obstacle to a successful negotiation, reluctantly leaves open the door for a possible accommodation.

In his November 22 commentary on the OMB paper, Hormats noted that if the United States remained firm in its intention not to devalue the dollar vis-à-vis gold, one outcome could be the U.S. purchase of francs with dollars to push up the value of the franc relative to the dollar, a unilateral declaration by the United States that the franc [Page 556]was revalued. If the United States bought francs to increase the franc’s value and if France attempted to maintain the original parity by using francs to buy dollars, the result would be politically disastrous.

Tab C of the OMB paper, “An Outline of a Possible Statement on International Monetary Negotiations,” contains the following:

“A. If our principal trading partners (Japan, Canada and the EC) will meet our minimum trade and burden-sharing requirements and if they are prepared to revalue as follows:

Japan 15%
Canada Maintain float
Germany 10%
France 5%

“then we will immediately lift the surcharge as to all countries.

“B. For the present we will only consider lifting the surcharge on an MFN basis. But we recognize that this policy permits one country to hold up surcharge lifting as to all countries (including LDCs). Hence: 1. We may be forced to consider whether selective lifting may not be the only way to reach final elimination of the surcharge. 2. We will entertain proposals from any country as to how recalcitrant countries can be induced to take part in the global settlement.”

The Treasury paper contains the following: “An average exchange rate depreciation of the dollar vis-à-vis G-10 countries of 10% (11% in terms of G-10 appreciation), as compared to May 1, 1971, would be consistent with a depreciation of 17% against Japan, 13% against Germany, and 8% against France, the U.K. and Italy, assuming a Canadian commitment to revalue (which is unlikely). These figures are not consistent with a $13 billion adjustment … they are somewhat above a realistic appraisal of settlement terms for most countries, and the Canadians will presumably only agree to a float. Such a proposal thus appears to leave ample room for realistic negotiation in comparison to a probable counter offer of 15% Japan, 10% Germany, and 5% France, U.K., and Italy.”

The G-10 Communique from the November 30-December 1 Ministerial in Rome; a transcript of Connally’s remarks at the end of the Ministerial, pages with Connally’s handwritten notes and doodles during the Ministerial; Volcker’s handwritten notes/comments that were presumably passed to Connally who chaired the meeting (e.g., “If the Group of 10 cannot discuss trade, why are they discussing the surcharge, etc.?”); and a typescript that highlights the interventions in the November 29 G-10 Deputies meeting (see Document 210), along with additional documentation, is in the Washington National Records Center, Department of the Treasury, Records of Secretary Shultz: FRC 56 80 1, Rome G-10 Meeting 11/30-12/1/71.

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Background material is also ibid., including a November 22 paper entitled “Scenario for G-10 Meeting and Aftermath,” which suggests actions in late November, at the Ministerial, and follow-up in December at NATO, and undated papers including “Summary of Proposed Approach Toward Monetary-Trade-Burden Sharing Negotiations Within the Next Several Weeks” ( Document 201), “Selective Lifting of the Surcharge,” and papers on bilateral issues with the European Community, Canada, and Japan. This material, along with other background papers, is in a Briefing Book in the Washington National Records Center, Department of the Treasury, Office of the Assistant Secretary for International Affairs Central Files: FRC 56 86 24, World/1/544, Monetary-Trade-Burden Sharing Negotiations. A November 9 CIEP paper requesting interagency defense burdensharing studies and the Treasury Department’s proposed strategy, which was thought to be different from the State Department position, is also ibid.

There is no indication that these papers came to the President’s attention but they provided the context for his advisers during their meetings with the President on November 23 and 24 (see Document 203). The essential elements of Volcker’s proposals at the November 29 G-10 Deputies Meeting in Rome (see Document 211) are also contained in these papers.