242. Editorial Note

The float of the British pound in June 1972 and German Economics and Finance Minister Schmidt’s remarks to Henry Kissinger and [Page 655] Ambassador Hillenbrand (see Documents 232, 235, and 240) were two examples during the summer of 1972 of the fragility of the foreign exchange parities in the Smithsonian Agreement of December 1971. In the exchange of messages between President Nixon and Prime Minister Heath following the float of the pound, the two leaders agreed that “radical reform” going “beyond a simple patching up of the Bretton Woods system” was required. See footnote 2, Document 232.

Under Secretary of the Treasury Shultz’ oversight, planning got underway during the summer of 1972 on how to respond to a breakdown of the Smithsonian Agreement and move ahead on a specific international monetary reform agenda. Central to the latter was building significantly greater exchange rate flexibility into a reformed international monetary system than had been envisaged and provided for in the Bretton Woods system. Providing scope for greater flexibility had been one of the major drafting objectives behind U.S. proposals for revisions in the IMF’s Report on Reform of the International Monetary System, which was released in Washington on September 6. See Document 241. Secretary Shultz addressed this, the use of changes in reserves as a presumptive indicator of the need to make exchange rate adjustments, and other reform issues in a speech to the Governors on September 26. Shultz’ address, entitled “Needed: A New Balance in International Economic Affairs,” was printed in The New York Times on September 27. It is also printed in Annual Report of the Secretary of the Treasury on the State of the Finances for the Fiscal Year Ended June 30, 1973, pages 400-404.

Treasury Department records from this time period relating to international monetary reform are in the Washington National Records Center, Department of the Treasury, Deputy to the Assistant Secretary for International Affairs: FRC 56 83 26, Contingency Planning, 1965-1973. These include the following three sets of papers:

“Papers Related to Plan X (July 1972 through May 1973).” These 34 papers dating from July 20, 1972 to May 11, 1973, were to be prepared in Treasury at the staff level. Paper #3, “Major Elements of Plan X,” is printed as Document 239.

Briefing Book—Special Working Group—August 1972.” The Briefing Book is divided into two parts: first are “Papers Prepared for Top Level” consisting of four “International Monetary Reform Issue Papers” as follows: “Discussion Outline of Proposed Monetary Plan,” “Outline of Proposed Plan,” “Questions of Negotiating Strategy,” and “Broad Policy Issues Raised by U.S. Participation in a New International Monetary Agreement.” (These four papers are also in the Washington National Records Center, Deparment of the Treasury, Files of Under Secretary Volcker: FRC 56 79 15, PAV—International Monetary Reform 1972.) The second section of the Briefing Book contains Selected Papers [Page 656] and Documents, generally prepared at the staff level in Treasury, OMB, the Federal Reserve, STR, and CIEP.

Briefing Book—Papers Relating to International Monetary Reform Prepared by Special Working Group—August, September, October 1972.” This set of papers was compiled against an August 30, 1972, list of 13 papers that was revised and expanded on September 20 to include 19 papers. They were generally drafted at the staff level in the agencies listed above. The Special Working Group has not been identified with any precision. Among the persons to whom specific drafting assignments were made are Bennett, Willis, Cross, Nelson and Bradfield at Treasury, Dale at the IMF, Erb at CIEP, Bryant at the Federal Reserve, Dam at OMB, Whitman at the CEA, and Malmgren at STR. These may have been the staff for the small group headed by Shultz; see footnote 4, Document 232.