Foreign Relations of the United States, 1969–1976, Volume III, Foreign Economic Policy; International Monetary Policy, 1969–1972

223. Letter From President Pompidou to President Nixon¹

Paris, February 4, 1972.

My dear President,

At the time of our meeting at the Azores, we reached agreement on two texts, namely an official communique and a document intended, in principle, to remain confidential.²

But the essential fact in my opinion is that our conversations of December 13 and 14, 1971, were characterized by a frankness and mutual understanding that were particularly useful on account of the very general character of most of the problems which were raised.

It is notably within this framework that the international monetary problems were touched upon in a more technical and precise fashion. Without doubt, it was impossible in our brief conversations to discuss these questions in detail. Nonetheless, very important accords were concluded on numerous points.

For these reasons, I feel obliged to describe to you more than six weeks after our conversations my uneasiness with regard to the evolution of the international monetary situation. I should like to call your attention to certain shortcomings which risk weakening the correct implementation of our agreements as well as to my preoccupation over steps taken or of positions envisaged by your administration and which, at first glance, do not seem to me to be consistent with what we agreed.

First, however, I would of course not permit myself to pass a judgment on your internal economic policy. I know that you have obtained remarkable results insofar as the movement of prices and salaries are concerned. Nevertheless, I am not confident that the combination of a large budgetary deficit and of a policy of systematically low interest rates can strengthen the confidence of the international financial community, always very sensitive. Nor do I believe such a course affords in the best of circumstances for the defense of the new parity of the dollar which you yourself have fixed.

At the time of our Azores conversations, I well understood that there was no question of the complete convertibility of your currency. But I did indicate to you that if you agreed to control the movements of capital, initiate a system which would permit the consolidation of dollar balances and also the defense of your currency, the dollar balances notwithstanding, this would in effect mean a convertibility from currency to currency.

I also told you that I understood very well that you insisted on refraining from an official and immediate declaration but that all these things were understood. [I also said] that failing these steps there would be no real defense of the dollar and it would become necessary for the Federal Reserve Board to defend your currency by exchanging it, if need be, against other currencies.³

It was my understanding that you understood well⁴ that in the new monetary system the dollar would be defended pursuant to the methods that I had described; that it appeared evident that there was no other method and, not counting the existing dollar balances, the new methods on which agreement had been reached represented in a way a form of convertibility.

In any event, these intentions have not for the moment come into play since, on the money markets, the dollar is not at its support level and the problem therefore has not posed itself for the United States to defend its currency as any other country would, by intervening to preserve the dollar rate within the margins defined by the Washington accords.

Nevertheless, the reversion of floating capital towards the United States which you and I expected has not yet occurred, perhaps for psychological reasons but also because of the interest rates that prevail, in practice, in your country. Moreover, the widening of the dollar margins, which was decided in Washington following our meetings, gives speculators the possibility to realize more substantial gains in capital without a new modification of the parity of your currency.

You yourself proposed setting the enlargement of these margins of fluctuation at 2.25 percent on either side of parity which represented on your part, as on mine, an important sacrifice in relation to our initial positions of principle. Therefore, I could not fail but note that in the report of your advisors which accompanied the message you addressed to Congress on January 27 on budgetary and economic problems,⁵ note was made of a growing consensus in favor of greater flexibility in exchange rates. This does not seem to conform to the undertakings that were reached between you and me. I would add that the experience of the last six weeks gives me reason to believe that, setting aside these formal considerations, the above mentioned remark (by the President’s advisors) does not correspond to a clear analysis of the present situation.

You must no doubt be impressed to see the extent to which we Europeans are directly interested in the strength of your currency. This is true because it is evident that it would be disastrous for the international monetary system and thus for the entire free world should the accords of December, whose historic character you yourself noted, become only a precarious pause along the path towards a new crisis.

The central problem of course remains that of your balance of payments, which, all things being equal, one cannot expect with certainty to correct in a short period of time. For that reason I suggested to you that you increase your controls on the movement of capital. You indicated to me that you were initiating certain measures in this regard which were not substantial, but that you were ready to go further. This course would have clearly improved the situation of your balance of payments, and therefore the level of the dollar on the exchange markets. It was for this reason that I was surprised to see not only that nothing has started in this direction, but that the Treasury of the United States has—at a moment where for psychological and technical reasons, it would seem necessary to improve confidence in the dollar—postponed from December 31, 1971 to February 29, 1972 the date at which the subsidiaries of American corporations established abroad must repatriate their profits. Such a measure taken at such a moment does not appear to me consistent with the objectives we set.

Lastly, I would add that you provided me with certain details about the procedure, which you obviously are alone competent to judge, that you intended to pursue with respect to Congress regarding the legal devaluation of the dollar. You also indicated to me in this connection that you would convene the Committee Chairmen with a view to speeding consideration of a bill which, according to you, was desirable since the Congress was adjourning immediately after the conclusion of our conversations. Thus have I welcomed with all the more pleasure the February 3 notification from Mr. Connally to Mr. Giscard d’Estaing, of the transmission in the very near future of this text to the Congress.

I wish in closing to emphasize the point that my concerns are those of a friend, that the prosperity of the United States and the maintenance of the value of the dollar are of fundamental importance for the entire Western world, and I would thus be happy if you could dispel these concerns which I have very freely brought to your attention in the spirit of our good conversations of 13 and 14 December, 1971.

Please, my dear Mr. President, accept my highest regards.

Georges Pompidou⁶

1. Source: National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 290, Treasury, Volume III. No classification marking. The French text of Pompidou’s letter was sent telegraphically. (Ibid., Subject Files, Box 356, Monetary Matters) This translation is attached to an undated memorandum from Haig to Kissinger, which indicates that the translation, made by Sonnenfeldt, is a “slightly sanitized” version of Pompidou’s message, which Kissinger could give to Secretary Connally. Haig reminded Kissinger that an interim response had been sent to Pompidou indicating his message would be given “careful and serious consideration” when Connally returned from Texas. The interim response was not found. Additional documentation concerning this letter, including a memorandum from Kissinger transmitting this “hot line” letter to Connally, drafts of President Nixon’s response, and Sonnenfeldt’s comments on the drafts are ibid.
2. Document 220.
3. Brackets in the source text. In addition to some “editorial” changes that were made in translating President Pompidou’s letter from French to English, at this point a phrase in the French text was omitted to the effect that Kissinger had also made this point. According to the memorandum of the Presidents’ conversation on the afternoon of December 13, during his review of the current international economic problems Pompidou said he understood that during a discussion that morning (presumably the meeting with Giscard), “Secretary Connally had said that we would defend the dollar.” At the conclusion of Pompidou’s intervention, “Dr. Kissinger said that we would have to buy dollars with other currencies in order to defend it. President Pompidou replied that this was correct. There was no other defense.” See Document 219.
4. The language in the French text for this phrase indicates that after he discussed this matter with President Nixon and Secretary Connally, Kissinger had assured Pompidou the next morning that these were President Nixon’s understandings. According to the memorandum of Kissinger’s December 14 breakfast conversation with Pompidou, Pompidou opened the discussion noting that he had talked with Connally and thought Connally had then talked with Kissinger. Pompidou said “he had found someone who had firm ideas. He had said that the U.S. would defend the dollar after devaluation.” Kissinger replied that “he understood what President Pompidou was saying. After talking to him he had spoken to the President and the President’s view is that when we speak of defending the dollar, as he understood it, we are talking about what happens in the new monetary system. The President believes that as long as there is the expression on our part that is what President Pompidou described as defending the dollar, but President Pompidou seemed to feel that there were others. Leaving aside the present balances, the way to defend is to buy when it falls.” In the ensuing discussion President Pompidou said “he understood that the present dollar balances would not be included as they were too big. The President apparently felt we were thinking of something else.” Kissinger replied “that his impression after talking to Secretary Connally is that the Secretary feels if the exchange alignment is correct then we will be prepared to operate the system.” Kissinger then read Pompidou item 6 of the draft Framework Agreement, with Connally’s formulation on “what we were prepared to do as part of a general package on margins and rates.” See Document 219. For the Framework Agreement, see Document 220.
5. The President’s “Annual Message to Congress: The Economic Report of the President,” dated January 27, is printed in Public Papers of the Presidents of the United States: Richard M. Nixon, 1972, pp. 111-114.
6. Printed from a copy that bears this typed signature.