Foreign Relations of the United States, 1977–1980, Volume III, Foreign Economic Policy

104. Memorandum From the Chairman of the Council of Economic Advisers (Schultze) to President Carter¹

Washington, February 9, 1978

SUBJECT

• Ambassador Warner’s letter on U.S. Treasury borrowing of Swiss Francs

You asked for my comments on a letter to you from Ambassador Warner.² The Ambassador’s letter reports on an offer by private Swiss bankers to make a Swiss franc loan to the U.S. Treasury.³

In our January 19 memo to you (copy attached),⁴ Secretary Blumenthal and I identified a number of disadvantages to the Treasury’s borrowing in foreign currencies. Borrowing from the private market has even more serious problems. Hence, we rejected this approach for now and considered it a future option only for borrowing from foreign official institutions if market conditions did not permit an unwinding of foreign currency swaps within one or two years.

The Ambassador’s letter suggests that borrowing in Swiss francs at 3½ percent would save money for the Treasury. It would not. Swiss franc interest rates are generally in the neighborhood of 3½ percent, in part reflecting the low inflation rate in Switzerland. If we borrow in Swiss francs, given low Swiss inflation, we would probably have to repay more dollars because of an appreciating Swiss franc. In general, borrowing in the currency of foreign countries with low interest rates would probably cost about as much as in dollars, but the risk is clearly greater.

The Ambassador has already received a reply through Secretary Vance to his earlier cable to the Secretary concerning the proposals of the Swiss bankers.⁵ The reply gives our view that foreign currency borrowing would not be effective. I suggest you do not reply to the letter you received, but forward it to Secretary Vance for appropriate handling.

1. Source: Carter Library, National Security Affairs, Brzezinski Material, Agency File, Box 17, State: 2–3/78. No classification marking. Carter initialed “C” at the top of the page.
2. Attached but not printed is a February 3 letter from U.S. Ambassador to Switzerland Warner to Carter. Carter wrote at the top of Warner’s letter: “Schultze—I see you have a copy—any comment?”
3. Warner explored this offer more fully in a January 31 letter to Blumenthal and included a copy of telegram 491 from Bern, January 30, which provided further details. The proposal involved a $2 billion loan by the four largest Swiss banks to the United States, repayable at 3½ percent interest over a 5- to 10-year period. Blumenthal replied to Warner in a February 22 letter: “The specific suggestions in your letter troubled me however. The question of sale by the U.S. Government of foreign-currency-denominated securities is one which we have examined thoroughly but found both ineffective and undesirable. We are not prepared to use such securities and hope that discussion of this idea will quickly die out. Please do not encourage it in any way.” Both letters are in the Department of the Treasury, Office of the Secretary, Executive Secretariat, 1978 Files, 56–83–69.
4. Printed as Document 98.
5. Vance’s reply to telegram 491 from Bern (see footnote 3 above) is contained in telegram 31572 to Bern, February 7. (Department of the Treasury, Office of the Secretary, Executive Secretariat, 1978 Files, 56–83–69)