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

163. Telegram From the Department of State to Certain Posts¹

Washington, July 26, 1971, 2331Z.

135453. Subject: U.S. Views on Limited Exchange Rate Flexibility.

1. There follows, FYI only, a brief summary of U.S. views on limited exchange rate flexibility as presented to IMF Executive Board July 19, 1971. Addressee posts should not take initiative to discuss subject, or to interpret U.S. position if questioned. We wish to maintain low profile, without public discussion.

2. Wider Margins. Margins should remain at present one percent under “normal” circumstances. A member of the Fund (or group of members) should have option to utilize margins up to 2-1/2 to 3 percent, temporarily or for longer period, by notifying the Fund and explaining its reasons for using wider margins, presumably in terms of actual or potential disequilibrating mobile capital flows facing the member. Fund would have residual right to challenge a member’s use of wider margins.

3. Transitional Floats. Members of the Fund should be able to utilize floating rates as a transition between par values established in accordance with the IMF Articles of Agreement. Thus a member would be required to represent that it had an actual or emerging fundamental disequilibrium, and Fund concurrence with this representation would be necessary. During the period of a float, the Fund would review the country’s situation and have authority to approve (or not object to) continuation of float or to prescribe conditions on float.

4. U.S. would be prepared to support an amendment of the IMF Articles which includes the points in paras (2) and (3) above. We believe that smaller and more frequent changes in par values than have generally occurred in the past are perfectly feasible under the existing Articles and that it is not necessary to envisage a specific provision in the Articles on this subject for countries that might want to make such changes.

5. In presenting these U.S. views, U.S. Executive Director made clear that he was mentioning number of details and elements of precision in order to give clear idea of main lines of U.S. approach, but in many instances these elements were tentative.²

6. Fund document containing text U.S. statement will be pouched when available.³ Caveat in first paragraph applicable to this document also.

Rogers

1. Source: National Archives, RG 59, Central Files 1970-73, FN 10. Confidential; Limdis; Greenback. Drafted in Treasury by Leddy and cleared by Cross and Volcker; cleared in State by Kennon (E/IFD) and A. Katz (EUR/RPE) and approved by Trezise (E). Sent to Bern, Bonn, Brussels, The Hague, London, Ottawa, Paris, Rome, Stockholm, Tokyo, USOECD, and USEC.
2. France was not alone in raising questions about the July 19 U.S. initiative in the IMF (see Document 162). Responding to a German query on U.S. motives for taking its proposals to the IMF Board at this time, transmitted in telegram 9012 from Bonn, Treasury prepared the following guidance to the Financial Attache, transmitted in telegram 140323 to Bonn, August 3: “throughout the discussion of this subject in the IMF and the G-10, the U.S. had refrained from presenting its views with precision, in part to see whether a broader consensus might emerge among the G-10 members. However, if progress to be achieved in September, we felt that this was the last opportunity to table a clear statement of U.S. thinking, prior to the August vacation period, in order to give foreign officials time to reflect on a specific proposal.” (Both in National Archives, RG 59, Central Files 1970-73, FN 10) The German response read in part: “the U.S. initiative, if anything, was proving helpful in pushing the EEC toward a common position since the EEC would not want to have only a U.S. proposal on the table.” (Telegram 9516 from Bonn, August 4; ibid.)
3. Executive Director Dale’s July 19 statement was circulated to members of the Volcker Group as VG/WG/71-31 on July 26. (Washington National Records Center, Department of the Treasury, Volcker Group Masters: FRC 56 86 30, VG/WG/71-1-)