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

216. Telegram From the Department of State to Certain Posts¹

Washington, December 7, 1971, 0050Z.

220210. Please deliver at opening of business December 7. Subject: Summary of G-10 Rome Meeting. From Secretary Connally.

1. In view of the importance of the negotiations and the prominent treatment in the press I wanted to provide you with my assessment of the Rome meeting and give some guidance on what I see lying ahead.

2. Multilateral negotiations between a sizable number of Finance Ministers and Central Bank Governors involving precise—even if hypothetical—exchange rates are a matter of highest sensitivity on the markets around the world. By restricting discussion to only the principals, a very lively and free give and take was achieved. This procedure is likely to continue in Washington.²

3. On Monday afternoon, Under Secretary Volcker at the Deputies meeting made a specific proposal incorporating a substantial concession by the United States.³ Our analysis has determined that a roughly $13 billion swing is needed if we are to return to approximate equilibrium in our basic position. This would involve, in the absence of other measures, an exchange rate adjustment on the order of 15-20 percent. Mr. Volcker said the U.S. could accept an 11 percent adjustment (figured from May 1, 1971), provided it was accompanied by progress on trade (particularly agriculture) and burden sharing. However, because the adjustment proposed was below what is likely to be necessary for a secure external position, Mr. Volcker emphasized the offer was based on a presumption of no convertibility into reserve assets and no change in the dollar price of gold. It was pointed out the U.S. could not assume responsibility for maintaining exchange rates when other countries would agree to substantially less change than what we felt was necessary to achieve equilibrium.

4. The U.S. was prepared to publish this offer, but withheld at the unanimous request of other Deputies.

5. On Tuesday the Common Market Ministers and the U.K. sought a common position and, as previously, they were able to agree mainly that the U.S. should offer to change the gold price.

6. To facilitate discussions on various formulas for achieving the exchange rate realignment the U.S. proposed discussion proceed in a hypothetical manner by asking what exchange rate changes might ensue with the U.S. changing the gold price in various ways. The ensuing discussion (and silences) made it apparent that despite the strong politically motivated desire in Europe for a gold price change, most European countries desired only small and inadequate exchange rate adjustments. It was apparent to all in the discussion that the U.S. could not unilaterally determine its exchange rate by any mechanism.

7. No country made a specific offer. Each nation has maintained its full prerogatives and future negotiations will proceed with all options open. However, each of us is now more intimately aware of not only the range of possibilities but also of likely magnitudes of adjustment.

8. As reported to you earlier, much time was spent in firmly establishing the point that trade measures must be part of the solution. We left Rome having created a strong momentum for a monetary settlement. However, large differences of substance remain. I cannot predict that settlement will be found in Washington. Too much depends on the trade negotiations, the prospect of which is difficult to assess at this time. Moreover, it is clear that exchange rate realignment which many countries are prepared to allow us is substantially below the minimum requirement which Mr. Volcker announced Monday of 11 percent and also below what the OECD and IMF studies have considered necessary. So in Washington I hope to find that the other countries have raised their sights a bit. In sum, the sense of progress which the press has reported and which the markets have reflected are justified. I hope it will be possible to have agreement by early in the New Year. However, to achieve that result, the time has come in which our trading partners must be more forthcoming than has been apparent so far.

Rogers

1. Source: National Archives, RG 59, Central Files 1970-73, FN 10. Confidential. Drafted in Treasury by Petty on December 6 and cleared by Volcker in draft; cleared in State by D.B. Timmins (E/IFD/OMA) and approved by Weintraub (E/IFD). Sent to G-10, OECD, and NATO capitals and to USEC and USOECD.
2. The G-10 Ministers were scheduled to meet again at the Smithsonian Institution in Washington December 17-18.
3. See Document 211.