29. Memorandum From the Chairman of the Council of Economic Advisers (Stein) to Secretary of the Treasury Shultz1


  • U.S. Objectives in International Monetary Discussions
We want to avoid commitment to give up any reserves, accept any liabilities or bear any financial risks to defend any pattern of rates, pending agreement on the basic principles of the reform proposal. If we do not stick to this point we will lose our leverage for advancing the reform proposal.
We should emphasize and accept appropriate measures to strengthen the position of the dollar, such as:
  • Reduction of withholding taxes on foreign investment income from U.S.
  • Elimination of taxes on foreign-owned estates in U.S.
  • Liberalization of foreign restraints on capital outflows.
  • Liberalization of foreign restricts on imports.
We should not object to any country’s intervening by selling its currency to prevent its price from rising above its band around parity. If (d.v.) the dollar should rise to its ceiling we should be prepared to [Page 117] sell to keep it from going higher. We don’t insist on anyone’s floating. We don’t object to it. But with respect to the countries that now have parities with us we don’t want them to go below the bottom of the band.
We want agreement in principle to push on to monetary reform.
I am very much on the fence about means to reduce the overhang.2
Basically, we do not want to buy a few weeks or months of quiet by agreeing to live with a system that we find neither desirable nor defensible in the long run.
Herbert Stein
  1. Source: National Archives, RG 56, Records of Secretary of the Treasury George P. Shultz, 1971–1974, Entry 166, Box 3, Council of Economic Advisers 1973. No classification marking.
  2. One issue in the monetary reform negotiations concerned the composition of national currency reserves, particularly the possibility of reducing the prevalence of the dollar as a reserve currency. One implication of such an initiative would be the transitional problem of how to deal with past accumulations of reserve dollars. What would happen to them when a new reserve asset was introduced? Would they be converted into the new asset or would they be depleted through purchases of American goods? The dollar “overhang” issue refers to this problem of the liquidation of surplus dollar holdings in the event of the introduction of a new reserve currency.