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

64. Memorandum From President Johnson to Secretary of the Treasury Fowler¹

Washington, June 16, 1965.

SUBJECT

• Forward Planning in International Finance

It has become clear to me that we must develop policies, covering a considerable period in the future, with respect to the development of the international monetary and payments system and the role of the United States in the system. The actions we have taken to bring our payments into balance will, over time, put substantial pressure on reserves abroad and hence on international trade and the growth of the world economy. The Free World will need some way of systematically producing the additional liquidity which has been supplied by the payments deficits of the United States. This will require international agreements among the nations which are the primary sources of liquidity. I recognize that considerable study has been devoted to these issues by the Long-Range International Payments Committee, chaired by the Treasury.² However, I believe that it would now be desirable to push forward with more intensive effort, so as to be fully prepared for full scale negotiations when the time is ripe and right.

In the light of your leading responsibility within the Government for forward planning on international monetary problems, I should like you to organize a small high-level study group to develop and recommend to me—through you, and the other principals directly concerned—a comprehensive U.S. position and negotiating strategy designed to achieve substantial improvement in international monetary arrangements.³ The Study Group should consist of appropriate senior officials from the Treasury, the State Department, the Council of Economic Advisers, the Board of Governors of the Federal Reserve System, and the White House. I understand that you would have in mind that it would be chaired by the Under Secretary of the Treasury for Monetary Affairs.

Without attempting to lay down rigid terms of reference, the following are some of the questions I have in mind:

1. What are the possible means of reducing the United States’ vulnerability to political and economic pressure through the threatened conversion into gold of any overhang of official dollar balances?

2. What are the possible and feasible means of assuring that credit will be available to deficit countries in amounts and on terms—maturity, interest, and automaticity—consistent with the realities of the adjustment process in a world of fixed parities where sharp deflation is not an acceptable alternative?

3. How can we assure that the amount of reserve assets will expand at a rate which will facilitate maintenance of full employment, reasonably stable prices, and expansion of world trade? Any revised or new system for creating reserves should insure against the instability inherent in a two-reserve asset or multiple-asset arrangement in which one asset is judged to be absolutely safe in terms of convertibility into the other(s), whereas convertibility the other way is unavoidably judged more uncertain.

The Study Group should explore which of the elements in the various proposed schemes of reform would be acceptable to the United States, which entirely unacceptable, and which might well be appropriate for negotiation.

In considering these questions, I would like the Study Group to take full account of the interrelations between our monetary and economic objectives, and our more general foreign policy objectives. It should explore the entire range of actions open to the United States which would bring to bear our economic strength, and our political strength, to secure reforms which would be desirable in terms of the full range of our object-ives. It should take into account a variety of contingencies with regard to the cooperation of other governments and explore what unilateral steps the United States might take to achieve progress. It should spell out alternatives with respect to timing.

In addition to the above general questions, the Study Group should give urgent and thorough consideration to the special situation of the United Kingdom, which is of major foreign policy concern. Specifically, it should consider what steps the United States could take to arrange for a relief of pressure on sterling, so as to give the United Kingdom the four-or five-year breathing space it needs to get its economy into shape, and thereby sharply reduce the danger of sterling devaluation or exchange controls or British military disengagement East of Suez or on the Rhine.

The Study Group should be small and it should work in the strictest secrecy, with knowledge of its existence and access to its work available on a strict need-to-know basis. Its work would not be a substitute for the continuing work, under your chairmanship, of the Cabinet Committee on the Balance of Payments (and the Executive Committee), the National Advisory Council on International and Financial Problems, and the Long-Range International Payments Committee. It is my desire that these committees continue their valuable work.

I believe it would be useful for you also to establish a panel of consultants, consisting of people outside of Government with broad knowledge in this field, who would be available to you for counsel. This consultant group might also be relatively small and include people from the academic, banking, and business communities. It would be appropriate to include people formerly with the Government, such as Douglas Dillon, Robert Roosa, and Kermit Gordon.⁴

I should like to receive a progress report on the work of the Study Group by August 2, 1965, and from time to time as appropriate. In addition, I shall expect periodically to meet with you and the other officials concerned to discuss the problems and prospects.

Lyndon B. Johnson

1. Source: Johnson Library, Bator Papers, International Monetary Reform, President’s Instructions—June 1965, Box 12. Secret. The memorandum was sent under cover of a June 16 note from Francis Bator to Secretary Fowler in which he wrote in part: “Will you send copies to Messrs. Ball, Ackley and Martin? You might wish to call their attention to the President’s caution on page 3 about secrecy and need-to-know.” A copy of the note and memorandum were sent to McGeorge Bundy. This memorandum is also printed in Lyndon B. Johnson, The Vantage Point: Perspectives of the Presidency, 1963–1969, pp. 597–598.
2. Not further identified.
3. In November 1965, George H. Willis, Deputy to the Assistant Secretary of the Treaury for International Affairs, assumed responsibility for coordinating the activities of this Study Group, which became known as the Deming Group. During Willis’ tenure, until the end of the Johnson administration in January 1969, numerous documents were distributed to the members of the Group. A record of these documents is in the Washington National Records Center, RG 56, OASIA Files: FRC 75 A 101, Deming Group. Approximately 50 percent of the documents distributed to the Deming Group were IMF papers and reports. Others were public statements by U.S. and foreign government officials related to international monetary matters, and some of the papers originated in the business and academic communities. The Deming Group papers include transcripts of G-10 Deputies meetings, many of which took place at the OECD Chateau de la Muette in Paris, and which were prepared by the Treasury Attache at the Embassy in Paris, Donald J. McGrew, and forwarded by McGrew to Willis for distribution in Washington. When the G-10 Deputies met in other locations, Willis sometimes drafted the minutes, but McGrew also occasionally attended. Other Deming Group papers are memoranda and letters from the U.S. Executive Director of the International Monetary Fund, William B. Dale, reporting on such matters as IMF Executive Committee meetings and his conversations with IMF Managing Director Pierre-Paul Schweitzer and others at the IMF. According to a January 17, 1966, distribution list for Deming Group papers, the members were William B. Dale (IMF), Francis Bator (NSC), Richard N. Cooper (Department of State), J. Dewey Daane (Federal Reserve Board), Arthur M. Okun (Council of Economic Advisers), Robert Solomon (Federal Reserve Board), and at Treasury Deming, Trued, and Willis. Bradfield at Treasury and McGrew in Paris were not members of the Group but were on the distribution list for the papers. (Ibid.) Willis attended many Deming Group and other meetings related to international monetary affairs, including G-10 Deputies Meetings and annual meetings of the IMF, and took often voluminous notes on their deliberations. Spiral notebooks containing Willis’ handwritten notes are ibid., 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.
4. On July 16, 1965, Secretary Fowler, in conformity with Executive Order 11007 of February 26, 1962, formed the Advisory Committee on International Monetary Arrangements. Fowler’s July 16 announcement named the following Committee members: Douglas Dillon, Robert V. Roosa, Kermit Gordon, Edward Bernstein, Andre Meyer, David Rockefeller, and Charles Kindleberger. Walter W. Heller and Frazer B. Wilde were soon added to the Committee. Francis M. Bator joined in September 1967, replacing Kindleberger who had resigned in 1966. The Advisory Committee, which became known as the Dillon Committee after its Chairman, met 33 times between July 16, 1965, and December 4, 1968. Summaries of meetings, minutes of meetings, and sets of papers distributed for meetings of the Dillon group are in the Washington National Records Center, RG 56, OASIA Files: FRC 75 A 101, World/1/540, Dillon Committee Records. A photocopy of Fowler’s July 16 announcement of the Advisory Committee on International Monetary Arrangements, including a brief statement of its terms of reference, is ibid., WOR/1/540 Advisory Committee on International Monetary Arrangements-General-Vol. I.