Office of the Historian

208. Telegram From the Embassy in France to the Department of State1

Paris, November 26, 1971, 1815Z.

20133. Subject: Bank of France Governor on international monetary situation.

1.
Summary: Governor Wormser of Bank of France professes not to have any hard-or-fast views about outcome of next week’s G-10 Ministerial. He thinks that if U.S. were prepared to undertake small devaluation of dollar against gold, general rate realignment would fall into place fairly easily. He is more concerned about several questions that would arise once new rate structure decided: width of support margins; responsibility for defense of new parities as between U.S. and other countries; appropriateness of U.S economic policies as means of consolidating new dollar parity. Embassy officers stressed to Wormser that any settlement satisfactory to U.S. would of necessity have to have sufficient weight to trade aspects of B/P problem. End summary.
2.
Economic Minister and Financial Attache called on Governor Wormser of Bank of France today for reading of his views on international monetary situation on eve of Rome G-10 Ministerial next week. Wormser professed not to have any hard-or-fast feelings about what might happen at Rome. He commented that even if U.S. were prepared make “contribution” to parity realignment by small devaluation of dollar against gold, it was by no means clear to him that Secretary Connally would be willing to play this “trump card” next week. If it was true—as alleged this morning in private newsletter published in Paris—that the Secretary was making plans for new meetings of Group of Ten in January, it would appear that in U.S. thinking, settlement of monetary problem was still some distance away.
3.
Wormser remarked that assuming small U.S. “contribution,” general rate realignment should fall into place fairly easily. In his opinion, of far greater importance, and far more difficult to answer, were several questions as to what would follow decision on new rate structure.
(A)
What would be width of margins around which new parities would be defended? This seemed to Wormser a question on which views diverged widely from country to country. In particular, Six did not see eye to eye, and certainly U.S. and French positions were quite far apart.
(B)
Who would be responsible for defending new parities? If U.S. continued to take position it had no responsibility therefor, this problem would be pushed back on other central banks, which would face possibility of having to accumulate additional unwanted, inconvertible dollars, since it was clear that massive U.S. deficit would not go away overnight. In other words, when exchange markets started operations under new rate structure, what, if anything, would Federal Reserve be prepared to do to defend parity of dollar in New York exchange market, as Bank of France and other central banks did in their markets?
(C)
For how long would new dollar parity remain valid unless U.S. could create firm basis for new parity by following “orthodox” economic and financial policies? When we asked Wormser what he meant by “orthodox policies,” he referred to reports that U.S. FY 1972 budget deficit would be $28 or $29 billion, and said this was an example of what was not “orthodox.” No currency devaluation had ever been successfully consolidated where fiscal and monetary policy was loose.
4.
Drawing on State 213813,2 we emphasized U.S. view of close interrelationship between exchange rate alignment and trading practices. We said U.S. delegation to Rome meeting would specifically be seeking to advance negotiations on trade matters, and that only a settlement which gave sufficient weight to this aspect of balance-of-payments problem would be satisfactory to U.S. Wormser took note, but made no comment.
Watson
  1. Source: National Archives, RG 59, Central Files 1970-73, FN 10. Confidential. Repeated to Bern, Bonn, Brussels, The Hague, London, Rome, Tokyo, and USEC.↩
  2. Document 207.↩