187. Letter From Secretary of the Treasury Dillon to the Belgian Finance Minister (Dequae)0
Dear Mr. Minister: I have been following closely the plans which are being made for a multilateral borrowing arrangement in the International Monetary Fund, because I attach very great importance to this project. Reports which have reached me of the discussions which the financial officials of the European Economic Community had in Ostend on July 17 have been of great interest,1 and I understand there will be further discussions early in September. I am writing this letter to let you know of my concern regarding certain aspects of the negotiations in the Fund.
I am glad to learn that substantial agreement was reached at the Ostend meeting that the resources of the Fund should be strengthened so as to improve its capacity to deal with major pressures in the foreign exchange field, and that the best way to do this is by means of some sort of borrowing arrangement. I fully share these conclusions, which should pave the way for active negotiation in the Executive Board of the Fund following the Annual Meeting in Vienna. There are of course many details to be worked out, including matters such as the duration of loans, the rate of interest, repayment arrangements, the additional drawing rights to be acquired by lending countries, and the very important question of the amount which each country would agree to lend. I am most hopeful that the agreed plan will be completed by the end of the year so that legislative action can be taken early in 1962 in those countries such as the United States, where it is necessary.
I understand that some officials who met at Ostend feel that the participating country should retain full discretion to decide whether it would loan to the Fund at a given time, and that no firm commitment should be given to the Fund by the countries participating in the borrowing arrangement.
[Page 412]I feel strongly that our objective must be to create confidence that the Fund is equipped to meet major demands at a time of emergency, as it was able to do in the recent case of the United Kingdom. Frankly, I doubt that an arrangement which would leave it quite uncertain whether in fact participants would lend to the Fund would provide that much-needed confidence. The Fund is not now equipped to meet large demands. Following the drawings by the United Kingdom and India, the Fund’s holdings of the eight currencies used in those drawings amounted to only $1.6 billion, plus $2.2 billion in U.S. currency and $2 billion in gold (excluding gold invested in U.S. bills). Also by the end of this year additional demands of at least $300 million probably will have to be met by the Fund. Yet firm assurance that the Fund will have adequate resources at its disposal is the best insurance that those resources will not have to be used. If the speculators and others who are keeping close watch of the balance of payments positions of the industrial countries conclude that the Fund does not have the resources to meet major demands, they will be much more likely to probe for weak spots.
For these reasons I believe that any effective borrowing arrangement should provide for firm commitments by each participating country to lend to the Fund up to a stated amount of its own currency. At the same time operating safeguards should be included in the arrangement to protect participating countries against unreasonable demands for loans. There should be criteria to determine the selection of the currencies to be borrowed at a given time and their actual use thereafter, and there should be full consultation with the lending member.
These questions probably cannot be worked out prior to the Annual Meeting. However, I hope that you and your colleagues in the EEC will continue to consider them with an open mind so that the Executive Directors after the Annual Meeting can undertake a full and unhampered negotiation.
So far as concerns the Annual Meeting, I understand that Mr. Jacobsson’s speech will probably include a careful statement of the progress being made in working out the borrowing arrangement. In my speech I intend to encourage the Executive Directors to proceed promptly with negotiations, and I hope that you and other Governors will find it possible to give similar encouragement.
Since we agree on the objective of a borrowing arrangement, even though the details remain to be worked out, I believe it would be useful for the Governors at Vienna to approve a brief resolution. You are familiar with the draft prepared by Mr. Jacobsson which reads as follows:
"The Board of Governors of the International Monetary Fund hereby requests the Executive Directors to consider measures by which the Fund’s holdings of currencies could be replenished, should this be [Page 413] appropriate, and to report thereon to the Board of Governors at an early date.”
Adoption of a resolution of this kind would have the great advantage of indicating to the world in simple language that the Governors have thrown their support behind this effort. I should very much appreciate hearing your reactions to it. Of course, its adoption would be without prejudice to differences of view which still exist on various points of detail.
In view of Governor Ansiaux’s interest in these matters, I am sending a copy of this letter to him.
Sincerely,
- Source: Department of State, Central Files, 398.13/8-2361. No classification marking. Attached to the source text is an August 23 letter from Theodore L. Eliot, Jr., Dillon’s Special Assistant, to Lucius D. Battle, indicating that Dillon had sent the enclosed letter to Dequae as well as to Karl Blessing (Belgium), Franz Etzel and Ludwig Erhard (Federal Republic of Germany), Wilfrid Baumgartner (France), Pierre Werner (Luxembourg), J. Zijlstra and M. W. Holtrop (Netherlands), and Paolo Emilio Taviani (Italy). Also attached is a copy of a note from Dillon to Hubert Ansiaux, Governor of the Banque Nationale de Belgique, thanking him for his support for the proposed multilateral borrowing scheme in the International Monetary Fund and enclosing a copy of the letter printed here for his information. All these letters were transmitted through the appropriate Embassies.↩
- This meeting has not been further identified.↩
- Printed from a copy that indicates Dillon signed the original.↩