94. Editorial Note

In December 1977, Under Secretary of the Treasury for Monetary Affairs Anthony Solomon proposed to West German officials that the U.S. Treasury and Bundesbank conclude a 1-year $1-billion swap arrangement. In an undated message to the President’s Assistant for National Security Affairs, Zbigniew Brzezinski, Solomon argued that the “arrangement will back up President’s statement on balance of payments and exchange rates, and explicit Treasury involvement will indicate this is a full U.S. Government effort and not just Federal Reserve activity.” Secretary of the Treasury W. Michael Blumenthal, the Federal Reserve Board, and Brzezinski all concurred in this initiative. (Carter Library, National Security Affairs, Brzezinski Material, Trip File, Box 5, President, Europe and Asia, 12/29/77–1/6/78: Stop Papers, Warsaw, 12/29–31/77)

On January 3, 1978, Blumenthal sent a message to President Jimmy Carter, who was abroad on a 9-day multinational trip, of the “very dis[Page 299]orderly” conditions of that day’s exchange markets, noting that “the dollar has depreciated sharply against the other major currencies following several days of persistent decline.” Asserting that “exchange rate movements of these magnitudes are a cause of considerable concern, and I am quite worried about them,” Blumenthal reported that the Bundesbank had agreed to the swap arrangement with the U.S. Treasury, which would be announced no earlier than the morning of January 5 at the request of the West Germans. Blumerthal also assured Carter that his “economic advisors are consulting on the situation and options,” promising him “a further report and recommendations within 24 to 48 hours.” Carter initialed Blumenthal’s message. (Message WH80047 from Blumenthal to Carter, January 4; Carter Library, Records of the Office of the Staff Secretary, Presidential File, Box 66, Trip to Mideast and Europe, 12/29/77–1/6/78 No. 2 [2])

On January 4, the U.S. Treasury and Federal Reserve Board announced a series of measures to shore up the value of the dollar, including the new swap arrangement with West Germany. (Clyde H. Farnsworth, “U.S. Will Intervene to Protect Dollar; Currency Rebounds,” The New York Times, January 5, 1978, page A1) On that same day, in remarks in Paris before the Palais des Congrès on the challenges facing the world’s democracies, Carter spoke about the global economy and asserted, among other things, that “America’s efforts will be directed toward maintaining the strength of the dollar, continuing steady progress against unemployment and inflation, and stimulating private investment.” (Public Papers of the Presidents of the United States: Jimmy Carter, 1978, Book I, pages 21–27; quotation is on page 24)

On January 5, Blumenthal sent a message to Carter (who was still in France) in which he noted “that the sharp decline of the dollar has at least temporarily been reversed. Your statements in Europe and activation of the swap line have worked as well or better than we could have expected. Nevertheless, I continue to be very concerned about the situation of the dollar. There is absolutely no assurance that another major assault on the dollar could not take place at any time. Our resources could be rapidly depleted. We are surveying other steps which could be taken. None are very attractive and all have high domestic political costs impinging on your other priority programs.” Asserting that “one reason for the recent problems has been the deadlock over the energy program,” Blumenthal urged Carter, upon his return to the United States, to use the issue of the dollar’s weakness “to create a sense of urgency in the Congress and the country in support of early passage of your energy legislation” and suggested several concrete actions Carter could take to this end. On a cover sheet attached to Blumenthal’s message, Carter noted his agreement. (Message from Blumenthal to Carter, January 5; Carter Library, Records of the Office of the Staff Secretary, Presidential File, Box 67, 1/9/78 [1])

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On January 13, in a memorandum to Blumenthal and the Chairman of the Council of Economic Advisers, Charles Schultze, Carter noted that he wanted “to be informed and involved in the preparation of plans to deal with the dollar problem should further difficulties arise” and requested “a joint memorandum which identifies the options open to us in meeting contingencies that might occur during the period ahead,” to be submitted by January 18. In particular, Carter requested information on foreign currency-denominated securities issued by the U.S. Treasury, an idea suggested to him by the Chairman of the Board of Governors of the Federal Reserve System, Arthur Burns; further means of curtailing oil imports, if necessary; and “other options you think we ought to consider.” Carter promised to meet with Blumenthal and Schultze to discuss their memorandum once he had reviewed it, proposing that they “also discuss what our basic objectives ought to be, under various circumstances.” (Carter Library, Anthony Solomon Collection, 1977–1980, Chronological File, Box 3, 1/1/78–1/16/78)