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

37. Memorandum From Secretary of the Treasury Kennedy to President Nixon¹

Washington, March 2, 1970.

SUBJECT

• Meeting with President Pompidou

I believe that my meeting with President Pompidou served a most useful purpose.² President Pompidou questioned me closely on the possibility of a recession in the United States and on the probable course of interest rates. However, his basic concern for the longer run appeared to be that the United States might not persevere in its effort to control inflation and the balance of payments. Dr. Burns and I tried—successfully I think—to reassure him on this point.³

President Pompidou emphasized the fact that the U.S. dollar is the pivot or the reference point on which the international monetary system rests. He feels that the system can only function well if the dollar maintains a stable value. Failure of the United States to preserve price stability forces all other countries either to accept inflation in their own countries or to revalue their currencies—an action which, he said, was politically extremely difficult.

Dr. Burns and I assured the President that we were very conscious of this responsibility to the world and were determined to bring inflation under control. Restoration of general price stability was a primary objective of our policy. Given the extent of pent-up demand for investment, we did not feel that there was a great danger of recession.

President Pompidou also said that a perpetual U.S. balance of payments deficit would lead to a dollar crisis which would become a general world economic crisis.

My answer was that we were attacking the fundamentals of the payments problem through our attack on inflation. I had Under Secretary Volcker describe the other elements in our balance of payments program.

President Pompidou feels that international payments problems should be dealt with—not by setting up a mechanism for greater flexibility of exchange rates—but by stopping inflation and thus obviating the need for exchange rate changes. He noted the trend in the Common Market toward freezing of rates.

I assured President Pompidou that we did not look upon increased flexibility of exchange rates as a means of escaping the responsibility of achieving and preserving general price stability in the United States. We did feel, however, that the possibility of employing techniques for limited exchange rate flexibility to strengthen the monetary system ought to be carefully examined.

I stressed the importance of continuing consultations and close cooperation in the financial sphere among the major countries and mentioned specifically the forthcoming visit of French Minister of Finance Giscard d’Estaing, who has accepted my invitation for a meeting at Camp David in early May.

David M. Kennedy ⁴

1. Source: Washington National Records Center, Department of the Treasury, Files of Under Secretary Volcker: FRC 56 79 15, France. Confidential. Drafted by F. Lisle Widman on February 27 and revised by Volcker. The memorandum was forwarded to the President under cover of a March 5 memorandum from Kissinger. (National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 289, Treasury Volume I)
2. The February 26 memorandum of the February 25 conversation, also drafted by Widman, is ibid.
3. Burns is not listed as a participant in the memorandum of conversation, but a February 18 briefing memorandum from Assistant Secretary of State Hillenbrand to Secretary Rogers indicates that Burns, Budget Director Mayo, and Herbert Stein were to join the group at Blair House at 10:30 a.m. (National Archives and Records Administration, RG 59, S/S Files: Lot 71 D 175, Box 130, NSC Meeting February 23, 1970—France)
4. Printed from a copy that indicates Kennedy signed the original.