Foreign Relations of the United States, 1969–1976, Volume III, Foreign Economic Policy; International Monetary Policy, 1969–1972

147. Editorial Note

On May 31, 1970, Canada floated the Canadian dollar, in large part because of large capital inflows and concerns about inflationary consequences. Secretary Kennedy informed President Nixon of the float in a May 31 memorandum. (National Archives, Nixon Presidential Materials, NSC Files, Country Files—Europe, Box 670, Canada, Volume II 3/70-8/71) On June 5 Acting Secretary of the Treasury Charls Walker sent a follow-up memorandum to the President informing him that exchange markets were settled and the Canadian dollar was now trading about 5 percent above its previous par value. Walker debunked suspicions that the United States may have influenced the Canadians to float. (Ibid.)

Foreign exchange markets were otherwise relatively quiet following the major currency adjustments in 1969, and remained so until the spring of 1971. During this time U.S. policymakers’ concerns with international monetary reform focused on limited exchange rate flexibility. In January 1970 the Department of State sent an airgram to the Embassies and Consulates in major financial centers and industrial countries, as well as the Missions to the OECD and the European Community, informing them the United States fully supported discussion of limited exchange rate flexibility in the IMF. The addressees were cautioned, however, that the United States had no fixed views on what the outcome of the discussions should be and was not seeking systematically to initiate bilateral discussions at that time. The airgram then provided extensive background material addressees could use sparingly to underscore U.S. interest in the subject, but requested that specific issues or technical points raised by host country officials be referred to Washington for reply. (CA-279, January 16, 1970; National Archives, RG 59, Central Files 1970-73, FN 10-1)

On February 25 U.S. Executive Director Dale made a statement in the IMF Board setting out five areas in which the United States thought efforts should be concentrated: somewhat wider bands, flexible authority to depart from generally applicable rules of the game, the concept of fundamental disequilibrium, upward and downward bias in the system, and presumptive criteria for changes in exchange rates. Dale said he entered the discussions “with the view that rate changes should not be the only—and perhaps seldom the primary—element of the adjustment process, but that governments should consider exchange rate adjustment in appropriate circumstances as an entirely respectable and useful policy measure.” Dale then elaborated on each of the five areas, without taking a position, and concluded by saying that the United States expected to benefit from the views of other Fund members. The full text of Dale’s statement was sent to the Embassies in G-10 capitals and to USOECD and USEC in telegram 28440, February 26. (Ibid., Nixon Presidential Materials, NSC Files, Agency Files, Box 216, Council of Economic Advisers)

The G-10 Deputies met in Paris on April 23 to discuss limited exchange rate flexibility. The opening paragraph of a summary of the meeting read: “The general consensus was that this one-day meeting had given a significant new impetus to the international discussion of limited exchange flexibility. Though there continue to be negative and cautious views within the Group of Ten, positive views were expressed by important members (Germany, U.S., Italy). General agreement was reached to pursue the subject further in the Deputies and to bring it before the Ministers of the Group of Ten on September 19 in Brussels, prior to the IMF Annual Meeting.” (Airgram CA-2600 to Bern, Bonn, Brussels (also for USEC), The Hague, London, Ottawa, Paris (also for USOECD), Rome, Stockholm, and Tokyo, May 9; ibid., RG 59, Central Files 1970-73, FN 10 IMF)

At the April 23 meeting Under Secretary Volcker “stressed the importance of a change in attitude towards exchange rate adjustment …. Under Secretary Volcker favored a wider band of an approximately 2 percent margin for countries that wish to use it. This was not essential but would be helpful as an adjunct to small and frequent parity changes in the form of a discretionary crawling peg at the rate of about 2 to 3 percent over a 12-month period…. The crawling parity raises two important sub-points. First, can criteria be developed… ? The second sub-point is the concept of fundamental disequilibrium…. As to a transitional period of flexibility, should there not be a legal option for a move like the recent German one? We do not have views as to the length of a transition period or how firmly it should be limited in time and extent.” (Volcker Group Paper VG/LIM/70-14, April 29; Washington National Records Center, Department of the Treasury, Volcker Group Masters: FRC 56 86 30, 1970, VG/LIM/70-1-VG/LIM/70-)

Of the 92 papers distributed during 1970 to the Volcker Group Working Group (in effect WG I as there were three others whose records are listed as WG II (reserve asset creation), WG III (balance of payments current account objectives), and WG IV (balance of payments statistical presentation)) on limited exchange rate flexibility, at least 90 were circulated before completing the September 10 U.S. Position Paper, Document 148, for use at the September meeting of G-10 Ministers in Brussels and at the IMF Annual Meeting in Copenhagen. These papers helped establish the context for the U.S. position in Brussels and Copenhagen. (Washington National Records Center, Department of the Treasury, Volcker Group Masters: FRC 56 86 30, VG/WG/70)

During the summer of 1970 there were numerous bilateral and multilateral consultations on limited exchange rate flexibility. Reporting cables on these consultations, as well as a number of cables reporting on consultations and positions regarding the SDR-AID link, are in the National Archives, RG 59, Central Files 1970-73, FN 10.