2. Letter From the Chairman of the Federal Reserve System Board of Governors (Burns) to President Nixon1

Dear Mr. President:

I have sent Henry some notes bearing on your conversations with Mr. Heath.2 Since your meeting with the Prime Minister is getting under way today, I am sending you this supplementary note directly.

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A jittery atmosphere has prevailed in exchange markets since the Italian announcement (January 22) of their dual-exchange system3 and the Swiss decision (January 23) temporarily to float the Swiss franc. These official actions and the market response to them underline the fragility of confidence—about international monetary and trading arrangements in general, and more particularly about the U.S. balance of payments and the strength of the dollar. The dollar has again been under attack in recent days; that is still the condition today, and further serious deterioration is feared by our New York bank tomorrow.

As long as a large disequilibrium in world payments persists and as long as there is little international agreement on the ground rules governing monetary and trading relationships, we should not be surprised if exchange markets become disorderly or if economic policies of individual nations become more nationalistic. Indeed, given the present leisurely pace of international discussions on monetary reform and on reductions in trade barriers, there is real danger that events will overtake governments and lead to international trouble.

I feel it is important that you alert Prime Minister Heath to this danger, and urge him to do what he can to push Europe forward into serious trade and monetary negotiations aiming at a constructive, outward-looking position.

The United States has provided leadership in the monetary area. So far, we have not been joined sufficiently by others, although Britain has gone further in this direction than any other country. The meeting of the Deputies of the “Group of Twenty,” just concluded,4 made virtually no progress.

Sincerely yours,

Arthur F. Burns
  1. Source: National Archives, Nixon Presidential Materials, White House Special Files, Staff Member & Office Files, President’s Personal Files, Box 6, Name/Subject File, Burns, Arthur. No classification marking. A stamped notation on the first page indicates the President saw it. Copies were sent to Shultz and Kissinger.
  2. Burns’s January 24 letter to Kissinger is summarized in Document 1.
  3. On January 20, the Italian Government announced that on January 22 it would split its foreign exchange market in two: one market for the purchase of lire for current account transactions where the lira’s value would remain relatively fixed, another for the purchase of lire for capital account transactions where the lira’s value would be allowed to float.
  4. The C–20 Deputies met in Paris January 23–25.
  5. Burns signed “Arthur” above his typed signature.