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

72. Memorandum From the President’s Assistant for International Economic Affairs (Peterson) to the Under Secretary of the Treasury for Monetary Affairs (Volcker)¹

Washington, August 25, 1971.

I’ve tried to reach you a couple of times but am on my way to San Clemente, so I’ll give you the essence of the two things I wanted to cover with you:

1. On Japan, there are some strong objections to the idea of bilateral balance goals on the part of OMB and George Shultz, on the grounds that it’s bad policy that could haunt us later with other countries.

My response has been:

a. We start with overall balance of payments goals anyway on the multilateral scene for both countries;

b. We have done some detailed projecting that suggests balancing is a reasonable goal, so it’s no doctrinaire commitment to zero balances. Besides, Japanese businessmen at the Hawaii Conference² have said it is feasible.

2. I would strongly urge you, Paul, to convene soon Paul McCracken and his key people (who impress me a great deal), Arthur Burns and his representatives, Ken Dam (in George Shultz’s absence) to discuss where we are going on:

a. Negotiations in the near-term on exchange rate and what the scenario is not only on the target but what we do vis-à-vis the surcharge;

b. Very important, what kind of an overall system we want to emerge from all this in terms of such issues as:

(1) Reserve currency status;

(2) How parities are set (including various automatic and/or more presumptive approaches);

(3) Gold and its role, including possible price changes;

(4) Dollar overhang;

(5) More flexibility, etc.

Paul, some of these people have strong and interesting views on these subjects. I suspect that Treasury’s and the U.S. Government’s best interests are best served if you chair a collaborative effort to come up with a paper that outlines the issues and various approaches that might be considered more or less in the “spirit of Camp David”,³ rather than by inadvertence encourage these various departments to submit their own views to the President independently. In this way, I believe a paper can go forward in an orderly way from this group to John Connally and to the President.

I will be in California but I can pick up attendance at such meetings after I get back. In other words, please don’t hold up anything on my account.

1. Source: Washington National Records Center, Department of the Treasury, Files of Under Secretary Volcker: FRC 56 79 15, PAV—Economic Stabilization Program. Eyes Only.
2. Not further identified.
3. The details of the New Economic Policy President Nixon announced on August 15 had been worked out in meetings of the President with his key economic advisers at Camp David August 13-15; see Document 168.