126. Notes on an International Monetary Group Meeting1

I. Exchange Rate Arrangements

Proposal for Article IV
Under Secretary Yeo has presented the French/U.S. exchange-rate agreement2 to Germany, Canada, the United Kingdom, The Netherlands, Belgium, and will soon present it to Japan. (Only in the U.K. and Canada were representatives from the central bank present; in most cases a joint U.S./French presentation was made.) The agreement has been well-received. (The French have also briefed the rest of [Page 453] the EEC.) On Monday, December 8, a copy of the proposed Article IV will be presented to each IMF Executive Director.
The proposed Article IV has already been shown to Witteveen and Gold3 of the Fund. They are not too happy with it, but they have been told that France and the United States will not consider language changes; they will consider substantive and operational changes.
Section 1 of the proposed Article lays out the general obligations of members with respect to exchange rates. To satisfy the French the language says, “each member pledges to collaborate with the Fund and other members to assure orderly exchange arrangements and to promote a stable system of exchange rates.” To satisfy the United States, all of this is linked to underlying economic policies and related obligations. The United States attaches particular importance to a pledge to “disavow practices that serve to manipulate the system in order to gain unfair competitive advantage relative to another member or members.” (In the Treasury view we were on the verge of an exchange-rate war with the French during the summer.) There was some discussion at the IMG meeting concerning the implications of a statement that members agree “to follow financial and exchange policies compatible with these objectives;” it was argued by Governor Wallich that this does not relate to monetary policy.
Section 2 of the proposed Article describes how the IMF members move from the present situation to a situation where countries’ exchange arrangements are explicitly recognized by the Fund. This section also contains a provision whereby by an 85 per cent vote any provision of the Article relating to general exchange arrangements can be modified; this is interpreted by the United States as meaning that something other then the present system or a par value system could be implemented in the long run.
Section 3 of the proposed Article describes the role of the Fund in exercising “firm surveillance” over the present system and any future systems. It is envisaged that the Fund should have a major role, but it will be a role of monitoring and not a role in actual intervention or in the definition, for example, of erratic exchange-rate fluctuations.
Section 4 of the proposed Article describes how the IMF members could by an 85 per cent majority vote establish a “generalized system of exchange arrangements based on stable but adjustable par values.” It stipulates that any such decision should be based upon economic conditions and be made in light of satisfactory liquidity and adjustment arrangements necessary to make any par value system viable. The section refers to a separate Schedule that will apply if it is decided to adopt a par value regime. Once a decision to adopt par value has been made a country cannot be forced to adopt a par value. [Page 454] Once a country had adopted a par value it can only be forced to retain it, not terminate it, by an 85 per cent majority vote—allowing a U.S. veto. (Canada accepted this apparently, but we may have assured them that we would not allow them to be forced to retain a par value.)
We expect this Article to be accepted by the Interim Committee in Jamaica.4 It will be discussed by the G–10 Deputies on the 11th and 12th of this month and by the G–10 Ministers on the 19th.5 It is not clear whether or not it will be discussed by the IMF Executive Directors.
Other Agreements with the French.
We have agreed with the French on an analysis of the sources of instability in the international economy and their relation to exchange-rate fluctuations.
We have agreed on a system of consultation in the future which will focus on intervention behavior and consultations on underlying economic and financial factors. It is not clear which countries will participate in these consultations; nor is it clear who from each country will participate. For the moment we are concentrating on gaining acceptance of Article IV and not on the other arrangements.

II. Gold

The United States and France have reached an agreement on gold that will settle the question of whether or not countries may purchase gold sold by the Trust Fund. This agreement, if accepted by other countries, will enable the early establishment of the Trust Fund.
This latest agreement is secret for the time being!

III. Development Security Facility

This discussion in the IMF is not going well. There are too many proposals. Treasury is concerned that we are in danger of exceeding the outer limit on the IMF’s resources. Under Secretary Yeo said, it is necessary to take the IMF apart as a banker would in order to answer this question.
State argued that we might be more sympathetic to proposals to liberalize regular tranche policies in the IMF; this proposal by the Managing Director is like one we made last year when the United States was suggesting alternatives to the Oil Facility. State is concerned about the North/South dialogue and the pressure we may get on the debt moratorium proposal. State said that Schmidt may be attracted to the idea. It was also said that the issue of the SDR/Aid link is certain to be raised at the dialogue and endorsed by the Europeans—Schmidt has apparently endorsed the idea again.
  1. Source: Ford Library, Arthur Burns Papers, Federal Reserve Board Subject Files, Box B63, International Finance—General 1975 (1). Strictly Confidential (FR). Drafted by Truman on December 8. Attached to an undated note from Truman to Burns that reads: “You might be interested in the attached notes on the International Monetary Group meeting Governor Wallich, Mr. Solomon and I attended on December 5. You might also be interested in knowing that Treasury is sending the complete French/American memorandum of understanding to Representative Reuss today; Yeo will see him about it Tuesday.”
  2. On November 17, Kissinger and Simon held a press conference while traveling on Air Force One back to Washington after the conclusion of the Rambouillet economic summit. Commenting on the summit’s proceedings, Kissinger suggested that the U.S.-French agreement on international monetary issues was “perhaps the single most significant thing that happened there.” Simon briefly described and answered questions on the U.S.-French memorandum of understanding, which had been initialed earlier that day, asserting his belief that the accord would “pave the way for agreement at the Interim Committee on overall monetary reform in January.” (Telegram 272808 to all diplomatic and consular posts, November 18; National Archives, RG 59, Central Foreign Policy Files)
  3. Joseph Gold was the IMF General Counsel.
  4. The Interim Committee met in Kingston, Jamaica, from January 7 to 8, 1976.
  5. Both meetings took place in Paris.