225. Editorial Note

On February 22, 1972, Treasury Under Secretary Volcker sent a memorandum to Dewey Daane, William Dale, Kenneth Dam, Peter Flanigan, Nathaniel Samuels, and Marina Whitman regarding “Development of Proposals for U.S. Positions in Further Discussions of International Monetary Reforms.” Volcker proposed they constitute a group known as “Volcker Group Alternates” (VGAs) to meet three times a week for several hours to draft papers for consideration by the Volcker Group on various aspects of the long-range reform of the international monetary system. Volcker proposed that Deputy Under Secretary for Monetary Affairs Jack Bennett would represent Treasury on the VGAs, and asked each addressee to designate a representative who could devote considerable time to the endeavor in the coming months. Volcker’s February 22 memorandum is attached to a March 7 memorandum from Willis to the Volcker Group Alternates. (VGA/72-1; Washington National Records Center, Department of the Treasury, Volcker Group Masters: RG 56 86 30, 1972, VGA/72-1-VGA/72-50) As [Page 612]the VGAs came into being, the four Volcker Group WGs established in 1969 and 1970, which had not met for some time, were terminated.

In his February 22 memorandum, Volcker proposed a series of papers for the VGAs and an early meeting of the Alternates to discuss the proposed papers as well as a recent Treasury paper on “a desirable organizational framework for international negotiations on international monetary reform.” The Treasury paper was revised several times in March. Its final version, a 14-page March 20 memorandum from the Volcker Group Alternates to the Volcker Group, entitled “Organization for Negotiations on Monetary Reform,” considers options and provides ample scope for U.S. support for creation of the C-20 at the IMF annual meeting in September 1972. (VGA/7-19 Rev.; ibid.)

On February 22 Deputy Under Secretary of State for Economic Affairs Samuels also sent a memorandum to Under Secretary Volcker regarding “A Start Toward Negotiating International Monetary Reform.” Samuels thought an early start could help stabilize current short-term capital flows and address European concerns. He proposed a series of topics for discussion in the Volcker Group (many of them similar to those proposed by Volcker for the VGAs in his February 22 memorandum) and discussed at length the “forum” question with a sympathetic leaning to “the idea advanced by the IMF management and others of using a so-called Governors Committee (G-20) within the IMF.” On February 24 Samuels sent a memorandum to Volcker welcoming “the convergence of thought” in their respective February 22 memoranda and suggested an early meeting of the Volcker Group to discuss the suggested topics for the VGAs. On February 29 Samuels sent a letter to Volcker proposing a restructured list of Volcker’s suggested papers for the VGAs, and designated Deputy Assistant Secretary Weintraub as the State representative on the VGAs. Samuels’ two memoranda and letter are in the National Archives, RG 59, Central Files 1970-73, FN 17 US.

On February 24 Dean Hinton sent a memorandum to the President’s Assistant for International Economic Affairs, Peter Flanigan, in response to Volcker’s February 22 memorandum. Hinton wrote that “Treasury seems to be pulling itself together” for the international monetary reform negotiations and recommended that Flanigan inform Volcker that Richard Erb would represent the CIEP on the VGAs, but that Hinton might also attend from time to time. Hinton said he would like to continue as the CIEP member of the Volcker Group, but recognized that Flanigan would wish to participate occasionally. (Ibid., Nixon Presidential Materials, White House Central Files, Federal Government Organizations, Treasury, 11/1/71-2/29/72, Box 2)

The forum for negotiation of long-term international monetary reform was as important an issue in early 1972 as the shape of reform [Page 613]itself. On January 12 Bundesbank President Carl Klasen, thinking in the G-10 context, told the Financial Attache at the Embassy in Bonn that “he could see adding a country like Australia, but he could not see adding Brazil or other LDCs. The G-10 as the body of the major industrial and monetary powers was sure to be needed in future crises and its usefulness would be destroyed by opening it to LDCs.” (Telegram 474 from Bonn, January 12; ibid., RG 59, Central Files 1970-73, FN 10)

By contrast, in the United States there was some concern that European interests were disproportionately reflected in the G-10 and on balance might be inimical to U.S. reform interests. The OECD was another possible forum, but monetary reform was not obviously part of its mandate and taking it up in that also-Eurocentric organization could raise hackles in the IMF. With an eye to forthcoming positions toward the LDCs at the UNCTAD III Ministerial scheduled to convene in Santiago in April, and in the hope of lessening the chance the United States might be isolated in more Eurocentric fora, there was some sentiment, clearly reflected in Samuels, February 22 memorandum to Volcker and the March 20 memorandum to the Volcker Group, for finding scope for LDC participation in the forthcoming international monetary reform negotiations.

On March 8 the Volcker Group Alternates met with British officials at the Treasury Department to discuss a U.K. paper on international monetary reform. The paper and the discussion were wide-ranging and included liquidity creation and distribution, an aid link, convertibility, and gold. Regarding the forum for discussions, the paper noted that the “discussion cannot be restricted to a small group of developed countries. Arrangements must be made for the developing countries and others outside the Group of Ten to make their voices heard.” The U.K. paper and a record of the discussion are Volcker Group paper VGA/72-14. (Washington National Records Center, Department of the Treasury, Volcker Group Masters: FRC 56 86 30, 1972, VGA/72-1-VGA/72-50)