Foreign Relations of the United States, 1964–1968, Volume VIII, International Monetary and Trade Policy

194. Memorandum From the President’s Special Assistant (Rostow) to President Johnson¹

Washington, April 2, 1968.

SUBJECT

• Stockholm Monetary Conference²

1. Stockholm completed another phase in the IMF Special Drawing Rights plan. It brings us closer to creation of “paper gold”.

The central issue was whether France would be able either to stall the proposal or change its basic character. Either outcome would have caused an international monetary crisis and a major drive to raise the official price of gold. Faced with this choice, the other European countries joined with us to settle the remaining questions and put the plan in shape for the ratification process.

2. There were few differences between the U.S. and France’s European partners. The main reason for compromises was to help Germany, Italy, Belgium and the Netherlands take the political heat at home of dividing with the French on this fundamental issue. They had to be able to show that they were not knuckling under to the U.S. but were acting to protect world prosperity on an issue where France was unreasonable. This required a demonstration that they and the U.S. would go the last mile to meet French demands without prejudicing the plan or the quality of the SDR as a reserve asset.

3. We therefore agreed:

• —on changes that amount, in effect, to a strict rather than a loose interpretation of the principles adopted at Rio;
• —on making it easier for a country to opt out of the agreement after the decision is made to activate it;
• —to give the EEC a veto on decisions for any future increases in IMF quotas and some related questions.

We were prepared beforehand to make most of these concessions in one form or another, in some instances, the compromises were more disturbing to France’s Common Market partners than they were to us. Others we regretted making, because they reduced flexibility in the future development of the SDR. The provision giving the EEC a veto on some additional IMF decisions will give us some trouble on the Hill, but it is not a substantive issue.

4. The willingness of the Four to stand up against the French is a major political development. It demonstrates again that there are limits on how far de Gaulle can push them.

5. The French claimed that the system could not work because our economy had gotten out of hand and we were dumping unwanted dollars on the world. In joining with us, the Four showed they had confidence that we would bring our financial house in order and, specifically, that we would pass the tax bill. The tax bill has now become as much of a world issue as the controversy over the price of gold.

6. We are playing the Stockholm meeting not as a victory of the U.S. over France, but as a victory for the world monetary system and for reason in world financial affairs.

The French did not vote against the agreement, but abstained. They could decide to join when the final document is submitted. But this will be difficult for de Gaulle to do—particularly after France came out publicly for an increase in the price of gold.

The market reaction to Stockholm has been excellent. The price of gold in London is softening and the volume is small.

7. As a result of Stockholm, it should be possible to put the Special Drawing Rights proposal in final form within two weeks. It will then go to each of the Governors of the IMF for approval by a mail vote. This must be completed within thirty days. On this schedule, we should be able to put the proposal before the Congress for ratification by the end of May.³

8. The Stockholm agreement and the Washington Gold Pool decisions are building blocks in the development of a stronger monetary system. They have brought order to the financial markets and give us time to move on our fiscal and balance of payments programs. They also mean we must show results on these programs.

W.W. Rostow ⁴

1. Source: Johnson Library, National Security File, Fried Files, Chron, March 1–April 30, 1968. Confidential. Drafted by Fried.
2. Regarding this conference, see Document 193. Deputy to the Assistant Secretary of the Treasury for International Affairs George H. Willis was part of the U.S. Delegation to the Stockholm Ministerial, and his notes are another record of the meetings. (Washington National Records Center, RG 56, Assistant Secretary for International Affairs, Deputy to the Assistant Secretary and Secretary of the International Monetary Group:FRC 83 A 26, Willis’ Notes 66–69, notebook entitled Ministers Mtg-Stockholm, March 20–30, 1968)
3. In an April 17 memorandum, Assistant Secretary of State for Economic Affairs Solomon informed Under Secretary for Political Affairs Rostow that the Executive Directors of the IMF on April 16 had approved their report on the SDR facility and fund reform and that, along with its annexed resolution, the report would now be referred to the Governors of the Fund for their review and vote on the resolution. Solomon informed Rostow that Secretary Fowler, the U.S. Governor of the IMF, would need authorization from the National Advisory Council for his vote. A meeting of the NAC was scheduled for April 18, preceded by a meeting of the Dillon Committee (see footnote 4, Document 64) at which Fowler would review with the Advisory Committee the NAC Special Report and elicit the Committee’s views on who might be non-governmental witnesses on the SDR/Fund Reform at Congressional hearings scheduled to begin May 1. Rostow concurred with Solomon’s recommendation and recorded State’s recommendation that the U.S. Governor vote affirmatively on the IMF Resolution. (National Archives and Records Administration, RG 59, Department of State Central Files: 1967–1969, Box 274, FN 10 IMF 4/1/69)
4. Printed from a copy that bears this typed signature.