U.S. Department of State
FRUS, 1961-63, Vol. IX: Foreign Economic Policy
Office of the Historian

[Section 4 of 18]

Financial and Monetary Policy

40. Memorandum From Secretary of the Treasury-Designate Dillon to Secretary of State-Designate Rusk

//Source: Department of State, Central Files, 811.10/1 - 1361. Confidential.

Washington, January 13, 1961.

Given our present balance-of-payments position/1/ it is important that we get as much help as possible from the Germans, as promptly as possible, in the negotiations now under way. Particularly important would be German prepayment of the GARIOA debt, increased military procurement in the U.S. and the removal of restrictions on certain of our agricultural exports.

/1/For additional documentation on the balance-of-payments problem, see Documents 1 ff.

I am reasonably certain that the minimum price we will have to pay for this will be an agreement on our part to recommend legislative action for a limited return program for German vested assets. The attached memoranda, which have been reviewed technically by GER and L/EUR, set forth the background and recommended solution.

I hope that we can move forward on this immediately after the 20th and would appreciate your views.

Douglas Dillon



The issue of compensating Germany for U.S. seizure of private German assets during World War II has become of major political importance in Germany and a serious irritant in U.S.-German relations.

Recent discussions with Germany indicate that the Germans may be prepared to conclude a settlement with the new Administration more favorable than we have hitherto been able to negotiate. The probable elements in this settlement would be:

1. Prepayment to the U.S., immediately, of $600 million of Ger-many's $787 million GARIOA debt.

2. Cancellation of the remaining $187 million of the GARIOA debt in full settlement of the vested assets--a figure about half-way between the previous German request of $200 million and the previous U.S. estimate of $175 million. This cancellation would have to be submitted to the Senate as a treaty amending the GARIOA agreement.

3. Other actions by Germany to help the U.S. balance of payments, including increased German military procurement in the U.S., removal of German restrictions on certain U.S. agricultural exports, and possibly German payment of a part of U.S. military aid to Greece and Turkey.

There is no assurance that the Senate would approve a treaty offsetting vested assets against GARIOA since there is strong Congressional sentiment against any return program. Nevertheless mere submission of the treaty would ease German-U.S. relations and the other proposed actions, including the $600 million GARIOA prepayment, would be of great benefit to the U.S. at the present time.

The essential details of the long-continuing and complicated vested assets problem, and of the proposed settlement, are set forth in the attached memorandum./2/

/2/For text of this paper, "Proposed Settlement of Vested German Assets Problem," January 10, see the Supplement.

41. Letter From Secretary of State Rusk to Secretary of the Treasury Dillon

//Source: Department of State, Central Files, 811.10/2 - 161. Confidential. Drafted by Myer Rashish (B).

Washington, February 1, 1961.

Dear Doug: I have your memorandum of January 13 and attached memoranda relating to the negotiations with the Germans over actions they might take that would assist our balance of payments position./1/ I have taken note of your recommendation that these negotiations be consummated as quickly as possible and, in particular, that the United States be prepared to reach an agreement to recommend legislative action for a limited return program for vested German assets as a contribution on our part to the satisfactory completion of the present negotiations. I am, of course, anxious to have these negotiations consummated quickly and successfully and would hope to proceed with them as soon as the Germans are in a position to translate their broad interest into specific proposals.

/1/Document 40. One of the attached memoranda is in the Supplement.

I do have substantial reservations with respect to any United States commitment to the provision of compensation for vested German assets. It is my understanding that this commitment would be directly related to the prepayment of the GARIOA debt and that the two items would constitute a separate component of the total package under negotiation. My reservations are briefly as follows:

1. The vested assets question is a highly controversial political issue in the United States and it is questionable whether it is wise or feasible at this time to seek Congressional approval to such a commitment given the past history of the matter. I would be reluctant to endorse a commitment to submit legislation if there were no reasonable assurance that approval for such legislation could be secured.

2. We are under no legal obligation to compensate the Germans for these vested assets. Any act of grace on our part would certainly provoke opposition on the grounds of equity, particularly from Americans with war damage claims against Germany who have not yet succeeded in obtaining legislation to provide for their compensation. In addition, such action would also lead to considerable pressure from the Swiss for the settlement of the Interhandel matter/2/ as well as from the Japanese for the settlement of their vested asset problems.

/2/Interhandel was a Swiss business concern that claimed shares in the German company, General Aniline and Film Corporation. Several of the latter's plants located in the United States were seized by the U.S. Government during World War II.

3. Although I regard constructive measures to solve our balance of payments problem as being of the highest importance, it seems to me that the Germans have an obligation to make a contribution to the solution of this problem without the need for any compensatory action on our part. Even if we should prejudice the prepayment of the GARIOA debt by our unwillingness to compensate for the vested assets or to consider the vested assets question as part of a negotiated package, I believe that adherence to this principle would outweigh the relatively minor contribution that the GARIOA debt prepayment would make to a durable solution of our balance of payments situation or to an improvement in confidence in the dollar.

4. Finally, the new measures which the President will outline in his balance of payments message/3/ will, I trust, make a substantial contribution to the solution of our present balance of payments problem. In particular, negotiations through multilateral arrangements, such as the OECD, offer a good prospect of obtaining further contributions from our Western allies in a position to make such contributions. I fear that we might well prejudice our position in multilateral negotiations by establishing the precedent of a negotiated settlement involving compensation on our part.

/3/Reference is to the President's upcoming special message to the Congress on February 6. See Document 2.

George Ball and I would welcome the opportunity of meeting with you at your convenience to review the vested assets question as well as the whole subject of the German negotiations.

Sincerely yours,


/4/Printed from a copy that indicates Rusk signed the original.

42. Memorandum of Conversation

//Source: Department of State, Conference Files: Lot 65 D 366, CF 1832. Confidential. No drafting information appears on the source text, which was prepared on March 22.

MVK M - 21 Washington, February 15, 1961.


Washington, February - March, 1961

US Summary on Financial Matters I

Discussions held on February 15 in US Treasury. Participants included Secretary Dillon, Under Secretary Ball, Chairman Martin, FRB, and Mr. Heller, CEA, for US and Sir Frank Lee, Sir Denis Rickett, and Ambassador Caccia for UK.

Economic Situation

Sir Frank said he hoped these informal discussions would be only the first of a continuing series, particularly because of the relationship of the two reserve currencies. With respect to the UK economic situation, he said 1960 had registered high levels of consumption and investment accompanied by a rise in prices and wages. The outlook for 1961 was for internal demand to continue to rise and there was thus a continued need for restraints to provide leeway for exports, although there may be some easing of the heavy import demand because of past inventory build up. He expressed concern over the UK payments outlook for 1961 but did not feel it would necessarily be a critical period. If there is a reduced inflow of short-term capital in 1961 and a fall in reserves, the UK would not be too concerned provided the trend is toward an improved world payments position. He said the UK welcomed the President's balance of payments statement,/1/ and that despite some uncertainty over the future the US and UK should not be deflected from the general purpose of expansion of world trade and the freest possible movement of capital.

/1/See Document 2.

Mr. Heller noted three aspects of the US economic situation: 1) the current recession, 2) the anemic recovery since 1958, and 3) the slowing down in long-term rate of growth. He noted that the peak was reached in the second quarter of 1960 when GNP reached $506 billion, and that in the first quarter 1961 GNP was close to $500 billion. The US potential, however, is estimated at $545 to $550 billion. Moreover, our rate of growth had declined since 1953. Mr. Heller said that, without taking account of any new programs contemplated by the new Administration, the forecast was for a gradual rise in GNP during 1961. He noted the problems relating to the strong impact of the federal tax system at high levels of economic activity and the various restraints on monetary policy, especially the balance of payments.

Secretary Dillon referred to the forecast in the British "Outlook" paper,/2/ that US GNP would fall by 3 per cent from the 1960 peak and recover from the second half of 1961 onward, and said that our figures indicated a decline of only slightly more than one per cent. Mr. Heller observed that, again without allowing for special new programs, we foresee an increase in public sector activities and no further substantial softening of the private sector.

/2/Not further identified.

Balance of Payments

Secretary Dillon cited an over-all US payments deficit for 1960 of $3.8 billion, which was the same as for 1959. About $2.3 billion of the 1960 deficit resulted from short-term capital movements primarily in the second half of the year. Some $1.5 million is considered as a basic deficit. The US expected a better export position in 1961. He referred in this connection to the hope that more canned fruit could be sold to the UK. He referred also to the various steps the US was taking to improve its payments position, e.g., ICA and military procurement, reduction of duty-free allowances for tourists, and possible action with respect to short term export credits and removal of tax incentives for foreign investment.

As to the outlook for the US balance of payments, Secretary Dillon said we do not wish to prognosticate but thought there was a good chance the US could approach equilibrium with respect to the basic deficit in three to four years. With regard to the special interest rate arrangements, he said it was not our wish to siphon off a substantial amount of funds from Europe, although there may be a modest movement of funds back to this country.

Sir Frank said that the US starts from a good trade position while the UK starts from a bad one. He welcomed the US approach which was aimed at improving the basic deficit without doing "direct and manifest" harm to others. US actions may, however, have a short-term effect on sterling. If sterling does come under strain in 1961, the UK should keep calm, provided the basic trend seems to be in the right direction. He noted that the UK deficit rose from #120 million in 1959 to #180 million in 1960. The UK payments outlook for 1961 was far from satisfactory.

German Payments Surplus and Aid

Sir Frank referred to Prime Minister Macmillan's meeting with Dr. Adenauer on February 23/3/ and asked for US views on how the basic structural imbalance between surplus and deficit countries could be tackled in concert, and also on the possibility of revaluation of the Deutsche Mark.

/3/Adenauer visited London for private talks with Macmillan February 22 - 23.

Secretary Dillon said that in our efforts to obtain a greater German contribution we were emphasizing the imbalance in world payments arising from the German surplus. We were pressing for expansion of German military equipment purchases in the US, without a reduction in their purchases elsewhere in Europe. Germany could also help on joint use of military facilities, and by military aid to Greece and Turkey. These contributions could well be made by Germany since it received about $1 billion per annum from foreign military expenditures, of which some $675 million came from the US and $200 million from the UK.

Secretary Dillon said we hoped that with German contributions in the military field and by our own actions, US balance of payments on military account could be helped by some $400 million this year, including $100 million in savings on Greek and Turkish aid, $150 million from German purchases of US military equipment, and possibly $100 million by the US buying material here for the use of our forces in Germany. It was entirely up to the Germans whether they wanted to make debt prepayment, but they could not extract from the US a concession on vested assets. Furthermore, this would be a one-time operation and not an approach to our basic deficit. He stressed the need for a substantial continuing German aid program with untied procurement, although the US would probably get back, through purchases of US goods, only a small percentage of the expenditures.

Secretary Dillon thought the prospects for any meaningful revaluation of the DM were not good. He understood that at one time the Germans had considered a small adjustment of perhaps 5 per cent, but in his view this would have been inadequate and would have led to speculation. Moreover, it was the Germans' view last year that if they revalued they probably would not have to do other things such as agreeing to the US request for them to increase aid contributions.

Sir Frank thought that an "adequate revaluation" would help the situation materially. While he agreed that a prolonged period of discussion and speculation followed by a revaluation of only 5 per cent would be undesirable, he nevertheless thought something in the neighborhood of 10 per cent would be adequate. He said that he did not maintain that revaluation was an alternative to the other things that Germany should do.

Secretary Dillon replied that the US places a lower priority on revaluation than the UK. He did not think revaluation was possible before the fall, nor even then that revaluation above 5 per cent was possible. In the US view even 8 or 10 per cent would not be enough. Secretary Dillon thought that the balance of payments measures we were seeking from the Germans were of the most pressing importance, and that we should move ahead with them before doing anything on revaluation.

43. Memorandum of Conversation

//Source: Department of State, Conference Files: Lot 65 D 366, CF 1832. Confidential. No drafting information appears on the source text, which was prepared on March 22.

MVK M - 22 Washington, February 16, 1961.


Washington, February - March, 1961

US Summary on Financial Matters II

Discussions held on February 16 in US Treasury. Participants included Secretary Dillon, Under Secretary Roosa, Assistant Secretary Martin, Mr. Heller, CEA, Chairman Martin of Federal Reserve Board, for US, and Sir Frank Lee and Mr. Parsons, Bank of England, for UK.

German Payments Surplus and Aid (cont'd)

Sir Frank referred to the previous day's discussions and said that West Germany was at the heart of the British imbalance. He was skeptical of the ability of getting the Germans to take on enough over the long term to overcome their persistent surplus without revaluation. He noted that the German current account surplus was unlikely to be less than $1 billion in 1961, and even with a $1 billion German aid program, the Germans probably would not commit more than half nor disburse more than one fourth this year. Secretary Dillon said that the US estimated the 1961 German surplus at about the same figure, and that it was vitally important for the Germans to do more in foreign aid and military purchases abroad. However, if the various measures previously mentioned, including a parallel approach by the British on German military purchases, are carried out, we visualize that the German current surplus could be reduced to some $250 million.

Secretary Dillon reiterated his view that revaluation was not the answer at this time, and Mr. Heller pointed out US military costs in dollars might increase with the German revaluation. Sir Frank said he hoped to keep the Prime Minister from raising the question of revaluation with the Germans.

Other Surplus Countries

Secretary Dillon said we have been impressed by the size of the Italian payments surplus, but that it would be difficult to deal with it without first succeeding with the German surplus. He thought under present programs the British and the French were carrying their share of the foreign aid burden and the problem is to get the French to continue. Sir Frank observed that the French surplus also bears watching; the Japanese problem was a unique one that affected all industrialized countries, whereas the German, French and Italian surplus problems related rather more directly to the US and the UK deficit positions. He said that Japan was not extending much aid as distinct from reparations and export credits. Secretary Dillon noted that while there had been success in getting Japan to relax its import restrictions, it had offset this by increasing tariffs. He thought that in view of Japan's interest in Asia, it could be persuaded to increase long term aid to India and Pakistan.

Monetary Matters

Secretary Dillon noted that for the first time since the 1920's there was convertibility of the major trading currencies. This meant that short term capital flows of the type experienced recently were easier to set off than before, and there was thus a need for much closer cooperation and coordination among the important fiscal and monetary authorities. He noted that the US Treasury was considering the possibility of freeing the interest rate limitations for foreign official balances. The President's message made clear the necessity to maintain US short term interest rates to avoid substantial outflow of short term funds, and at the same time to maintain a different pattern for long term interest rates. He reiterated, however, that it was not the US Government's intention to attract a big return flow of funds from abroad, but rather to stabilize the situation. US Federal Reserve authorities were interested in working out closer contacts with their opposite numbers abroad. Under Secretary Roosa raised questions about techniques that needed to be considered on two points: one was the interest rate affecting the short term flow of funds, the other concerned the judgment of central banks whether to hold such funds in gold or dollars. Chairman Martin said that exploratory discussions on these matters, both bilateral and multilateral, would be invaluable, particularly in the present atmosphere of convertibility. He also pointed out that the Board's monetary policy would be defensive rather than aggressive with respect to foreign funds.

Secretary Dillon noted that the OECD would provide a forum for coordination, although it might not be the only forum nor adequate in terms of size. Sir Frank said that the UK was willing to consider anything that might help moderate the speculative movement of short term funds, but saw difficulty because of the great differences in various domestic economies. For example, the UK problem was one of excessive demand, the US the contrary. Mr. Parsons also concurred in the need to explore every conceivable possibility of cooperation in monetary policy. He wondered whether an interest rate of one or two per cent would be sufficient inducement to change the minds of central banks on whether to hold gold or dollars. He, moreover, did not personally favor splitting markets into compartments, with one for central banks and the other for private individuals and commercial banks, when in fact the markets are interrelated. Secretary Dillon remarked that these various mechanisms were not considered as being inherently desirable but rather as defensive measures which have been made necessary because some of our friends have placed undue reliance on monetary policy as opposed to fiscal policy. The US felt the two were, of course, complementary. Secretary Dillon stressed the importance to the free world of coordination with Europe in this area at this time. It was the responsibility of the US to assure confidence abroad by showing that the American economy was under control.

Sir Frank accepted the idea that US action in this field was designed to be defensive and not aggressive.

44. Memorandum of Conversation

//Source: Department of State, Presidential Memoranda of Conversation: Lot 66 D 149, January - April 1961. Secret. Drafted by Nora M. Lejins (LS) and approved by B on April 24, S on April 25, and the White House on May 11. The meeting was held at the White House. Chancellor Adenauer and Foreign Minister Heinrich von Brentano visited Washington April 12 - 13. For a memorandum of President Kennedy's conversation with Brentano on April 13, on foreign assistance, see Document 104.

Washington, April 13, 1961, noon.


Washington, April 12 - 13, 1961


Balance of Payments Problem


United States The President Secretary Rusk Ambassador Dowling Assistant Secretary Kohler Mrs. Lejins (Interpreter)

Federal Republic Chancellor Adenauer Foreign Minister von Brentano Ambassador Grewe Dr. Karl Carstens Mr. Weber (Interpreter)

The President brought up the problem of the balance of payments. He stated his great concern about the outflow of gold from the country, which had resulted in the Anderson - Dillon mission of last year./1/ Moreover, the matter had been discussed with the Foreign Minister during his February trip to Washington,/2/ and Ambassador Dowling had been carrying on talks concerning it in Bonn. The President wanted to make three points perfectly clear: (1) Last year the impression had been created abroad that the United States might withdraw one or two divisions from Western Europe. This was the last thing the United States would do. The President hoped that sufficient adjustments would be made to cope with the situation in other ways, and he was definitely not going to withdraw any divisions from Europe. (2) Last year the impression had been created in Western Germany that the United States felt the burden of maintaining its troops was too heavy from the standpoint of its domestic taxation program and was therefore asking help from Germany. Again the President wanted it to be very clearly understood that the United States was prepared to bear its own international burdens. His only concern was the outflow of gold, as previously indicated. (3) Regarding the outflow of gold, during the past three months the United States has lost 1,200,000,000 DM. The largest amount was lost in January. February and March had shown some improvement. If the rate of the last three months were projected for the entire year, the United States would lose 4 billion DM in 1961. As previously indicated, the President hoped that the loss would not be as great as that, since some improvement was in the making. The President indicated that we were losing gold in three ways: (1) Last year part of the loss had been occasioned by the interest differentials. That, he understood, had been brought to an end. (2) The United States was losing gold because of its troop payments and maintenance abroad. (3) A large outflow of gold was occasioned by United States aid to under-developed countries. Understandably enough the United States was reluctant to diminish its aid efforts in any way or to diminish its troop maintenance abroad. That would be very bad for both the security of the United States and the joint security of the Free World. Therefore the President was very anxious to diminish the outflow of gold so as not to decrease either foreign aid or troop maintenance. He was thus very much interested in seeing that everything possible was done to lessen the outflow of gold resulting from our maintenance of troops in the Federal Republic. The joint utilization of facilities should be a very helpful step. Moreover, he hoped that the purchase of supplies in the United States could be encouraged, since this would be a second very significant step forward. Somehow, the President felt, this matter would have to be brought into balance before the end of the year in order to permit the United States to carry out its commitments on a world-wide basis.

/1/Dillon and Anderson visited Bonn November 19 - 23, 1960. For an account of their visit, see Foreign Relations, 1958 - 1960, vol. IV, pp. 142 - 147.

/2/Brentano visited Washington February 16 - 17. A memorandum of his conversation with President Kennedy on February 17 is in Department of State, Central Files, 611.62A/2 - 1761. The portion of the conversation on Berlin is printed in vol. XIV, pp. 8 - 11. For text of the joint communique issued on February 17, see American Foreign Policy: Current Documents, 1961, p. 475, or Department of State Bulletin, March 13, 1961, pp. 369 - 370.

The President continued by stating that the United States net deficit each year because of the maintenance of troops, etc., in Germany amounts to 350 million dollars in gold. This constitutes approximately one third of the total gold loss; last year it was one quarter; this year, if the improved trends continue, this sum might possibly constitute one half of the overall gold loss. The President hoped that the Federal Republic would work closely together with the United States to find means of diminishing this deficit.

The Chancellor stated that he well understood the United States position and problem in this respect. He understood that the United States had undertaken steps to improving the situation. It had, for example, introduced compulsory savings among the troops in Germany and had banned the sale of German products in the PXs. The Chancellor welcomed these measures.

The President indicated that he hoped these matters could be explored further through Ambassador Dowling and Under Secretary Ball. It was necessary to strike a better balance since that would improve the overall situation of the United States.

45. Memorandum of Conversation

//Source: Kennedy Library, Dillon Papers, Memoranda of Conversation, 1961. Confidential. Drafted by Donald W. Curtis (Treasury/OIF) on June 20, although the date at the top of the source text is June 19. The source text is stamped, ~~~~~~"Approved by the Secretary, June 25 1961." The meeting was held in the Secretary's office.

Washington, June 16, 1961, 10:15 a.m.


Mr. Stikker, Secretary General of the NATO Mr. Saint-Mleux, Chief of Cabinet to the Secretary General Secretary Dillon Ambassador Finletter Mr. Sullivan/1/ Mr. Tobin, State Department/2/

/1/presumably Charles A. Sullivan, Special assistant to the Secretary of the Treasury.

/2/Irwin M. Tobin (EUR/RA)

Mr. Curtis


International Economic Questions and the NATO

Secretary General Stikker indicated that, in addition to discussing many political questions at State, he had also had talks with Mr. Ball on economic matters. He then cited the reference to NATO discussions made in the U.S. aide-memoire to the Germans last February,/3/ as well as the role which Secretary General Spaak had played in resolving the earlier problem of U.K. troop costs in Germany, and inquired whether we were intending to bring the NATO into the current U.S.-German balance of payments talks in any way.

/3/For text, see American Foreign Policy: Current Documents, 1961, pp. 472 - 474.

Secretary Dillon replied that we were not, and that earlier statements suggesting we would had not been well thought out. Explaining the way in which we see this problem, he mentioned that there had been a sharp improvement in the U.S. balance of payments since last winter but said the turn in the cyclical situation here could be expected to create pressure on our balance of payments again. Therefore, there was need to keep on working on this question. The essential problem here was to make our export earnings cover our non-trade international outlays, and the largest of these were our military expenditures abroad. Our outlays for foreign economic aid were less of a burden on our balance of payments because of our policy of tying these expenditures to exports; last year the balance of payments effect of foreign aid had been perhaps $1 billion but in the next year or two we were hoping to reduce this effect to about $500 - $700 million per year.

With respect to Germany, he said, we felt that their balance of payments surplus was the counterpart of both the U.S. and the U.K. deficits. Action by us alone to correct the situation would merely result in shifting our deficit to the British, and therefore the primary need was for the Germans to take appropriate action. We could not, of course, tell them just what actions they ought to take. Their recent revaluation of the Deutsche mark was directed to this problem, but was not by itself adequate to resolve it. Larger capital exports by Germany were another way of dealing with it, and here he thought that progress was being made. Finally, we had thought one easy way for the Germans to meet this problem would be for them to increase their procurement of military equipment abroad. The Germans had recently reached agreement with the United Kingdom on an increase in such procurement. Our own talks with the Germans were continuing, and were not too satisfactory so far.

Independently of these negotiations, he said, it looked as though German military procurement orders from the United States would increase somewhat this year, but this would not be enough. The gap between such German procurement here and our own military expenditures in Germany currently amounted to around $400 million per year. Our own directives designed to minimize the foreign exchange spending of our military might reduce this gap, possibly to something like $200 - $250 million. Thus, if we could get the Germans to buy about $200 million more of military equipment from us annually, that would largely solve this problem. We felt this was a reasonable request, in view of the German financial strength and their lack of a large domestic armaments industry, and therefore we were continuing to press them on it. Another subject we were also discussing with the Germans--which he indicated the Ambassador was familiar with--related to possible joint use of various military facilities.

He mentioned that, in the earlier stages of our talks with the Germans, they had responded that this was a multilateral matter--why should we pick on them alone? However, when we had taken them up on this and agreed that the problem of their surplus was multilateral in its effects, they seemed to lose interest in multilateral discussions. Thus, we now had no specific intentions of any NATO discussion of this matter. The earlier U.K. case, which the Secretary General had cited, was really quite different in a number of respects. We did of course want all appropriate international organizations to continue the general multilateral pressure on the Germans to do more about their surplus, but we intended to keep our procurement talks with them on a bilateral basis.

Ambassador Finletter suggested that the Secretary General might, however, want to consider--when the currently-planned discussion and review of NATO military planning was completed--whether some of the countries with greater financial capability could usefully be asked to provide appropriate military equipment assistance to other NATO countries. The Secretary noted that, during our talks last year with the Germans, we had tried to suggest their extending such military assistance to other NATO countries but had been unsuccessful. If the NATO could, as its review of national military plans proceeded, get the Germans or others to do something along this line, that would certainly be fine. We had come to recognize that there was merit in the German reluctance to provide such military aid on a bilateral basis, and had stopped pressing them on it.

Summing up, the Secretary reiterated that, despite what had been said in our February aide-memoire, both we and the Germans preferred to keep our talks on a bilateral basis. However, he was in agreement with the Ambassador's suggestion that an ultimate decision by NATO calling for greater conventional forces might create a problem of military assist- ance programs among NATO countries which would be of a multilateral character. Mr. Sullivan called attention, in this connection, to the great difficulties which had been encountered in arriving at a satisfactory multilateral sharing of the relatively small costs involved in the NATO infrastructure programs. The Ambassador and the Secretary General felt this experience was not necessarily conclusive, and possibly a large multilateral NATO cost-sharing arrangement would be easier.

The Secretary General then inquired whether he could assume, similarly, that the United States did not have any idea of pressing in the NATO for establishment of a burden-sharing formula. The Secretary replied that this was correct. Establishment of any such formula was a very difficult and complex matter and would not be feasible--although we had in connection with discussions in the DAG, for example, made reference to the statistics on the relative burdens which are being carried by various countries. In doing so, we had included defense costs along with other considerations--and, in the U.S. case, this of course meant our total military costs, including for example our large expenditures on atomic energy. The Germans, he indicated, had backed away from discussion of formulas after looking at the U.S. figures, and the references made to burden-sharing in our February aide-memoire had been intended only to exert general pressure on them to deal with their balance of payments surplus.

The Secretary General mentioned the question of the United Kingdom and the Common Market, indicating he had some doubt whether the British would decide to join on conditions which would be acceptable to the rest of us. In response, the Secretary referred to the impressions Mr. Ball had gained from his conversations. He himself felt there had clearly been a marked change in the U.K. position, but we could not of course be equally certain of a successful outcome. There had not been any change in the U.S. position on this matter.

The Secretary General alluded, finally, to the problem of the NATO mission to Greece and Turkey. Only the Italians had so far offered a candidate. The Germans also were willing to, but the British had no interest and he was still looking for a third candidate. It was possible the Netherlands might supply one. The Secretary asked whether Tinbergen might be available. The Secretary General agreed Tinbergen was a very good man, but thought the Netherlands Government might be reluctant to propose him. The Secretary suggested they might perhaps do so if no other candidate were found.

Donald W. Curtis/4/

/4/Printed from a copy that bears this typed signature.

46. Memorandum From Secretary of State Rusk to President Kennedy

//Source: Department of State, Central Files, 811.10/7 - 961. Secret. Drafted by C. Arnold Freshman (EUR/GER) on July 6 and cleared by Tyler and Hillenbrand. Attached to the source text is a July 6 memorandum from Tyler to Secretary Rusk, indicating that the memorandum responded to the President's July 5 request for information on Germany's actions in relation to the U.S. balance-of-payments situation.

Washington, July 9, 1961.


Recent German Measures Relating to United States Balance of Payments

At our meeting yesterday,/1/ you asked to be informed about recent measures taken by the Federal Republic of Germany which have had a beneficial effect on the United States balance of payments situation. As you know, our aide-memoire on this subject was transmitted to the Germans on February 17, 1961, at the time of Foreign Minister von Bren- tano's visit to the United States, and I shall recount here pertinent German measures subsequent to the delivery of the aide-memoire.

/1/Reference presumably is to a meeting among the President, Secretary Rusk, and Hillenbrand on July 5 at 11:20 a.m. (Johnson Library, Rusk Appointment Books)

German Foreign Aid Program

Since announcing an intention in October 1960 to provide on a continuing basis aid to less-developed countries, the Germans have made significant progress in this area and further substantial progress is expected. An aid program of DM 5 billion ($1.25 billion) for 1961 - 62 is under way, this amount corresponding to almost 1 percent of the German GNP, a ratio suggested by the United States as an aid target for member countries of the Development Assistance Group (DAG).

In recent testimony before the Senate Foreign Relations Committee in support of the Act for International Development, Under Secretary Ball commented briefly on the German foreign aid program. Enclosed is an excerpt from Mr. Ball's testimony covering his remarks on this subject./2/

/2/The enclosure, not printed, is an extract from Ball's testimony before the Senate Foreign Relations Committee in support of the Act for International Development on June 5.

US-German Balance of Payments Discussions

In accordance with your instructions, Ambassador Dowling has set in motion arrangements under which joint working groups composed of US and German military experts are meeting to examine (1) German military requirements over the next 5 years, looking to increased procurement in the United States; (2) military logistics facilities which may be available for joint use on a shared-expense, leasing or similar financial arrangement and (3) the possibility of reduction in costs of contractual services for our military establishment in Germany, which now amount to approximately $270 million annually.

German military orders in the United States total $208 million for the first six months of 1961, as compared with an average annual level of $225 million for preceding years. The German Defense Ministry has proposed that our Defense Department undertake to handle German military procurement in the United States on a contract basis; if this arrangement can be worked out, we would expect it to pay off in increased procurement.

German military procurement includes an order for two battalions of Pershing missiles ($130 million), which the United States has accepted subject to the possibility of changes in NATO force goals or in deployment of NATO weapons which might affect fulfillment of the contract for these missiles. This order replaced a previous contract for Mace missiles.

Defense Minister Strauss has stated his willingness to place considerably larger orders in the United States, provided what he characterized as deficiencies in some categories of US military equipment are overcome by joint US/German development. At our request, the JCS is presently examining Strauss' assertions, looking to a discussion with him on this point when he comes to Washington on July 14./3/

/3/No record of this visit has been found.

Other Recent Financial Actions Undertaken by the Federal Republic

As you know, the Germans revalued their deutschemark by approximately 5 percent in March 1961, which among other things will make our exports to Germany more competitive and make German exports more expensive.

The German Government prepaid $587 million of its postwar debt to the United States, leaving a balance of $200 million. This increment benefited our liquidity position.

Certain US products, notably poultry, were recently liberalized by the German Government for importation, resulting in an immediate increase in the volume of exports of these items to the Federal Republic. This action stemmed from our balance of payments discussions with the Germans.

Dean Rusk/4/

/4/Printed from a copy that indicates Rusk signed the original.

47. National Security Action Memorandum No. 81

//Source: Kennedy Library, National Security Files, Subjects Series, Balance of Payments and Gold. Secret. Copies were sent to the Department of State, the Bureau of the Budget, and the Chairman of the Council of Economic Advisers.

Washington, August 28, 1961.


Secretary of the Treasury


U.S. Gold Position

I would like to have as soon as the Treasury has made an analysis an up- to-date study of our gold position. How much we are losing. How this compares to other years. Whether we can look for a better result in the next six months. What should we do about it.

I gathered the other day that one of the reasons for the flow of gold was the investment by Americans of dollars in Western Europe. Should I before Congress leaves announce that we are going to put this on a must basis of legislation next year that will make it retroactive to September 1st of this year. Would that help discourage a flow in the next four months?

John F. Kennedy/1/

/1/Printed from a copy that indicates Kennedy signed the original.

48. Memorandum From Secretary of the Treasury Dillon to President Kennedy

//Source: Kennedy Library, President's Office File, Treasury, 1/61 - 9/61. Confidential. Transmitted under cover of a memorandum from Dillon to the President, September 1, which reads in part: "Our information regarding the actions of other countries and our talks with them is highly confidential. Therefore, the information in this memorandum should be closely held."

Washington, August 31, 1961.


Gold flows

I refer to your memorandum on gold, dated August 28, 1961./1/

/1/Document 47.

Our net gold loss this year amounts to $274 million. This may be compared to losses during similar eight-month periods of 1958, 1959 and 1960 that amounted to $1,775 million, $1,013 million and $462 million, respectively. (See table attached.)/2/

/2/Not printed.

The important trends are as follows. Heavy gold sales began in 1958 and continued through February of this year. The $5.4 billion loss brought our total gold stock down to $17.4 billion. The combined effects of this Administration's statements with respect to the dollar and our balance of payments, the psychological and real impact of our improved balance of payments, and the cooperative steps taken by the Basle group of central banks, all combined to bring the losses to a halt in March. During July and August, however, we again sustained net losses totaling $72 million. In the absence of the $150 million received from the IMF, the loss would have been greater.

The reappearance of net gold sales is significant, and there are distinct possibilities of some further losses in the months ahead. To some extent, of course, we must expect changing economic positions of various countries to lead to gold movements if gold is going to serve as the base for our international monetary system. But the present and foreseeable period may also show some disturbing strains.

We are taking steps to reduce the possibility of drains from the three major sources of possible gold demand. Some demand may result from further shifts of the funds received by Britain from its drawing on the Monetary Fund. Additional payments of British debts to Switzerland, which is not a member of the Fund, are scheduled and it is likely that those dollar receipts will be converted into gold. Although our understanding with the British is to the effect that its drawing will not be used in a way that would pose a demand for gold from us, nevertheless disposition of the proceeds to other countries may result in such demand. In this connection, we are emphasizing to the British the nature of our understanding, and attempting to assure that any gold loss will be minimized.

Some demand may result from activity in the London gold market. The major part of this week's gold loss represented sales to the Bank of England to offset its losses in the market. We may have further sales to the Bank of England for this same reason.

I do not feel that the recent increase in demand for gold on the London market indicates an international judgment that the dollar is in a weakened position against other currencies. Rather the activity appears largely to have reflected an upsurge in private hoarding and speculative demand, owing in good measure to the heightened tensions associated with Berlin and other aspects of the world political situation.

However, confidential information indicates that there have been some central bank purchases in that market. By far the largest has been the Bank of Italy. We have sent a representative of the Federal Reserve to Italy to advise them that it would be preferable for them to buy directly from us rather than putting up the price on the London gold market. As a result we now have the assurance that the central bank of Italy will not participate further in the market.

Despite this, continued demand on the London market seems likely for the immediate future, in the absence of a notable improvement in the international political situation. We are in close touch with the British regarding this market in order to assure that no rapid price rise occurs to excite speculation. Moreover, we are careful to avoid any public expression of undue concern over the gold situation inasmuch as such concern might in itself stimulate capital flight.

The third source of potential demand in the near future lies in short- term capital movements. Some flows of funds from the United States to Britain are now being reported in response to interest rate differentials. Other flows of significant amount have taken place from certain European countries to Switzerland. Such flow of funds may at times tend to lodge in those countries which hold a high proportion of their reserves in the form of gold. In view of the high volatility of short-term capital it is essential that our short-term interest rates do not decline. We will also want to continue to pursue vigorously our own foreign exchange operations which can help to minimize speculation and reduce the attractiveness of moving funds because of differentials in interest rates here and abroad. You will recall the numerous authorizations we have sought from you in order to strengthen our activities in this field.

With respect to the balance of payments generally, there has been a deterioration since the first quarter of this year. I do not feel at this point that our gold losses have been related directly to this worsening. However, continuing payments deficits will further increase the liquid dollar holdings of foreign countries. Although private accounts may absorb some portion of such dollar gains, most of the additions are likely to go into official reserves. It is significant that a number of countries have increased the amounts of dollars they are currently willing to hold as a proportion of their total reserves. Nevertheless, further additions may well occasion conversions into gold. In addition, there is always the pervasive influence of such deficits on confidence in the dollar.

I will be discussing the general financial situation at the Vienna meetings of the International Monetary Fund and World Bank in September./3/ I am hopeful that the outcome of these meetings will show the determination of the financial representatives of the member governments to cooperate even more and help dampen speculative and hoarding activity. Real progress there toward the plan for standby credit facilities in the International Monetary Fund should help to calm the financial markets.

/3/Regarding U.S. participation in these Vienna meetings, see Documents 50 and 51.

In view of the above considerations, I do not recommend that the Administration take any new action now. But I continue to feel that we must seek active implementation of the various measures which you have already directed. In particular, we should press forward with our efforts to stimulate and encourage our export trade; it is significant that our trade surplus has declined a bit and the recovery of our economy will add to import demand. We should also press forward to gain a more equitable sharing with our allies of economic and military aid.

I interpret your reference to legislation to refer to our proposals to eliminate tax deferrals or impose changes respecting "tax haven" corporations. I do not think that a public statement indicating that these changes should apply retroactively to the latter part of this year would help our gold position significantly during the next few months. Such a statement, which would be contrary to our general philosophy about retroactivity in tax proposals, might well be considered an expression of undue concern about the gold situation on our part, and might actually run the risk of accelerating our losses. However, it may well be desirable for you to give strong personal and public support to our proposal to tax foreign "tax haven" corporations when it comes up next January before the Ways and Means Committee.

Douglas Dillon

49. Telegram From the Department of State to the Embassy in Germany

//Source: Department of State, Central Files, 811.10/9 - 1261. Secret; Priority; Limited Distribution. Drafted by Joseph E. O'Mahony (EUR/GER) on September 10; cleared by Freshman, Sullivan (Treasury) and Henry J. Kuss, Jr. (DOD/ISA) in substance, Sidney Schmukler (E/OFD) and John C. Renner (EUR/RA) in draft, and David Korn (S/S); and approved by Ball. Repeated to Paris.

Washington, September 12, 1961, 10 p.m.

662. For Ambassador from Ball. Paris pass USRO Stoessel, McGuire and Riddleberger. Two separate subjects of current interest here are (a) additional "burden-sharing" arrangements with FRG to help alleviate pressures on US balance of payments, especially in regard to foreign exchange drain connected with present as well as increasing US military force level in FRG, and (b) overall magnitude FRG aid for LDC's 1962 and following years.

Defense and Treasury extremely anxious transfer to FRG large portion foreign exchange costs involved in stationing US troops in FRG, including foreign exchange costs any American troop build-up there. Present indications are this year's deficit US balance of payments if continues to increase at present rate could approach $3 million. While generally recognized inadvisable take any action this time that might interfere with current negotiations, felt some sort general exploration subject may be called for now.

Anticipate renewed efforts after September 17 by US agencies and nearly all LDC's to obtain large-scale developmental assistance for LDC's from FRG. I intend coordinate US approaches this regard primarily through DAG. To provide basis US estimate how much aid FRG may be expected or persuaded render various countries, as well as to assure continued, active and effectual FRG participation aid field, more definite FRG commitments essential. Elections soon will no longer be excuse not facing up to much more substantial budgetary appropriations this purpose.

Your comments these subjects urgently requested, including your opinion advisability raising them with Brentano in most general way during FM Washington meeting. Approach on aid, of course, would be made entirely separately from discussion troop costs.


50. Telegram From the Embassy in Germany to the Department of State

//Source: Department of State, Central Files, 811.10/9 - 1361. Secret; Priority; Limit Distribution. Repeated to Paris.

Bonn, September 13, 1961, 6 p.m.

607. Paris pass USRO, Stoessel, McGuire and Riddleberger. For Under Secretary Ball. Reference: Deptel 662./1/ I appreciate seriousness of problem in reftel concerning additional pressure on US balance of payment arising from increased US forces level in FRG and the overall magnitude of FRG aid for LDC's in 1962.

/1/Document 49.

In view of the uncertainties concerning the exact composition of the next Cabinet and even certain doubts that Adenauer will succeed himself as Chancellor, I believe that raising these two questions with Brentano at the Foreign Ministers meeting would not produce any immediate results. He is bound to give standard answer that nothing can be done until after the elections.

On the other hand I believe that question of pressures on US balance of payments in connection with augmentation of US forces should be brought forcefully to his attention, if for no other reason than to get this question "on the record." FRG has had no formal notification re extent of increase and no conception what this may mean in terms of US financial resources. Level of magnitude of augmentation of US forces will be pre-sented formally to MOD on Friday Sept. 15. When question is raised with Brentano,/2/ I recommend that he be requested to transmit these views to his government and be informed that we will raise the questions contained in para 2 of reftel with the FedRep at an early date following the formation of new Cabinet, which will not be established until after new Bundestag convenes on Oct 17. Care should be taken in presentation to avoid assumption that we are reviving issue of troop support costs.

/2/Secretary Rusk discussed the foreign exchange and other implications of the NATO military buildup with Brentano on September 14. (Memorandum of conversation, September 14; Department of State, Conference Files: Lot 65 D 366, CF 1950)

Re future FedRep development aid program, several important decisions are now being held in abeyance until formation next Cabinet (see Embtel 594)./3/ Most immediate issue is level of commitment authority to be sought in 1962 budget law. According our info, FonOff and EconMin staff level, with concurrence Brentano and Erhard, favor 1962 legal commitment authority for bilateral development loans (KFW fund) in neighborhood DM 2,000 to DM 3,000 million (over and above DM 3.9 billion bilateral loan portion present 1961 - 1962 program) in order continue forward momentum of program. Finance Ministry, on other hand, is holding out for considerable smaller commitment authority. This issue will have to be resolved fairly soon after formation new Cabinet in order permit 1962 budget planning go forward. Question of 1962 cash appropriations far less important since KFW already has more than enough funds assured to cover expected disbursement level for 1961 and 1962. FedRep bilateral loan commitments for 1961 already exceed DM 5 billion.

/3/Dated September 13. (Ibid., Central Files, 862A.00/9 - 1361)

A second, more important but less immediate, issue is need for FedRep to develop long-term aid program for period beyond 1962 commensurate with its capabilities and responsibilities. I believe we should press for this too but we should allow new Cabinet time to settle down and attend to most urgent questions before doing so.

In addition discussing above with Brentano, I suggest it would be highly useful to raise both points with Etzel at Vienna meeting, particularly need for substantial commitment authority in 1962 (see A - 304)./4/


Dated September 9. (Ibid., 398.14/9 - 961)/4/

51. Telegram From the Embassy in Austria to the Department of State

//Source: Department of State, Central Files, 398.13/9 - 1861. Confidential.

Vienna, September 18, 1961, 3 p.m.

497. Monetary Conference from Dillon. Pass White House, Treasury. Have reached understanding with other major industrial countries that group of us would commit ourselves to lend additional resources to IMF to deal with balance of payments pressures which impair or might impair world monetary system. This follows from our initiatives in series bilateral discussions culminating in group meeting yesterday with Ministers and Central Bank Governors of Belgium, Canada, France, Germany, Italy, Japan, Netherlands, Sweden and UK and Managing Director Monetary Fund.

General positions individual countries will be indicated in their Wednesday/1/ speeches here. Fact that above understanding reached will not be announced until Friday morning when Managing Director will make summing up speech.

/1/September 20.

Over-all amount expected to be five to six billion. Individual commitments, operating procedures, and other details to be negotiated this fall with view to legislative action early in 1962 in [garble] countries where needed.


52. Memorandum From the Assistant Secretary of State for European Affairs (Tyler) to the Under Secretary of State for Economic Affairs (Ball)

//Source: Department of State, Central Files, 811.10/10 - 961. Secret. Drafted by Andrew Stalder (EUR/GER) on October 8 and concurred in by Robert H. Kranich (EUR/RA) and Martin. The date is handwritten on the source text.

Washington, October 9, 1961.


US/FRG military balance of payments negotiations

The next military balance of payments meeting will be held in Secretary Dillon's office at the Treasury on Monday, October 9 at 4:30 p.m./1/ Participants, in addition to Secretary Dillon and yourself, will be Ambassador Dowling, Deputy Defense Secretary Gilpatric, Mr. Charles Sullivan (Treasury), Mr. Henry Kuss (Defense), and Mr. C. Arnold Freshman (GER).

/1/No record of this meeting has been found.

The tactics for dealing with the current military balance of payments negotiations and the prospective additional foreign exchange expenditures involved in the augmentation of US forces in Germany will be considered. In this connection, it may be anticipated that State will be asked to join Treasury and Defense in agreeing to the position incorporated in the Treasury draft of September 29, 1961 (Tab A)./2/ In essence, this position contemplates the early expansion of the scope of the current negotiations (underway since April and directed at correcting an existing military payments imbalance) to include consideration of the additional financial problems which will develop in the event that US forces in Germany are augmented. The Ambassador, on the other hand (Bonn's 700 at Tab B),/3/ has recommended that the current negotiations be pursued to a conclusion and that the problems associated with a possible augmentation of the US forces be considered separately in a negotiating framework which emphasizes primarily the common defense rather than the balance of payments aspects.

/2/Not attached. A copy is in Department of State, Central Files, 811.10/9 - 2961.

/3/Not attached. A copy is ibid., 811.10/9 - 2261.

The Current Negotiations

The current balance of payments negotiations with the FRG have as their objective the conclusion of a multi-element package which will largely offset the present US military payments deficit.

A major element of this package is increased German military procurement in the United States. The Embassy has recently estimated, on the basis of discussions held thus far, that the FRG procurement for the period January 1961 - March 1962 will be approximately $400 - 450 million.

In its draft, the Treasury notes that the technical level discussions of the various package elements have been slow. While true, it should be noted that this cannot be attributed solely to problems raised by the German negotiators. (Some of these, in connection with a long-term German commitment on procurement, are elaborated upon in a recent Embassy draft on this subject at Tab C.)/4/ Lack of rapid progress is as much attributable to delays in Washington guidance on such key points as joint use of facilities, reduction of US war reserves, availability of weapons systems, and use of facilities in third countries.

/4/Not attached and not found.

Prospect of US Troop Augmentation in Germany

Even assuming that the current negotiations can be successfully concluded, an additional foreign exchange problem of sizeable dimensions will arise if US forces in Germany are augmented. In anticipation of this the Ambassador has made certain recommendations for raising this problem with the FRG. From the summary of his recommendations and the summary of the Treasury - Defense position below, it appears that there is agreement on the objective but not on the tactics.

The Ambassador's Recommendations

Ambassador Dowling has recommended that the current balance of payments negotiations be actively pursued to a conclusion. He favors early resort to a new, separate approach to the FRG to discuss the financial implications of augmentation of US forces in Germany.

The Ambassador's recommendations are based on the following considerations:

1. We stand a better chance of securing increased German efforts if the problem of troop augmentation costs is considered in a framework of joint US/FRG military efforts for the common defense rather than purely as a balance of payments problem;

2. The scope or objectives of the current balance of payments negotiations are not such as to permit sole reliance on them as a vehicle for increasing German contributions to the level required by augmentation because:

a) a long-term German procurement commitment cannot be envisaged. (In addition to the prevailing uncertainty with respect to NATO military requirements and future economic trends--which might, for example, encourage the Germans to build up their own armaments production--there are political and, to some extent, legal problems which make it difficult for the FRG to enter into such a commitment.)

b) no package proposal presently envisaged can provide the leverage we require. (In the Treasury draft substantial negotiating leverage is attributed to the readiness of Defense to provide German forces with a Cooperative Logistics System. Whether this is in fact the case cannot be determined until the term Cooperative Logistics System as used by Treasury and Defense is more precisely defined so that all three agencies have a clear understanding of what is being offered, as well as what the offer is worth. It is important, for example, to understand that giving the Germans a supply service and sharing our reserves with them applies only to those military items which we both use. The offer to share war reserves may have less magic than is implied, since in event of hostilities we, as the Germans and our other Allies are aware, would share these reserves. Thus the Germans may be unwilling to pay for something they would expect to get for nothing if the need arises. Another consideration is that the bulk of our military supplies are stored in France. The French would, of course, have to be informed of any large scale US-German sharing arrangement. This could be a particular problem if, in order to share our equipment with the Germans, it became necessary to construct additional facilities in France.

c) the contingency aspect of augmentation might of itself result in the slowing down of the current negotiations.

The Ambassador proposes in essence that the financial problems of the augmentation be covered within a political framework, with the Germans simply being asked to take on this increment in our foreign exchange deficit as a responsibility of their country in the present international situation. The Ambassador suggests that prior to October 17, he and, if possible, Secretary McNamara or Deputy Defense Secretary Gilpatric lay before the Germans the entire range of problems arising out of US and FRG preparedness actions. The objective of this presentation would be to impress upon the FRG the need for urgent action and to lay the groundwork for the political decisions which the new FRG Government must take. Shortly after the new government is installed, i.e., after October 17, the Ambassador proposes that negotiations on the specific problem of meeting the costs of augmenting the US forces take place in Bonn. The Ambassador would hope to be joined by State, Defense and Treasury representatives from Washington, preferably at the Under Secretary level.

The Treasury - Defense Position

Substantively, the Treasury - Defense position contemplates an immediate fusion of the current negotiations which have been underway since April with consideration of the future additional foreign exchange problem which will develop in the event of US military augmentation. In terms of the mechanics, it is the Treasury - Defense recommendation that the current negotiations be raised from the technical to the political level by the despatch, immediately following the installation of the new German Government, of a letter from the President to the Chancellor. This would be followed by the despatch on or about October 20 of a State - Treasury - Defense team headed by Deputy Defense Secretary Gilpatric to carry on the first phase of the "discussions."

(In the previous Treasury draft the word selected was "negotiations". The change may indicate a movement in the direction of the position recommended by the Ambassador at least to the extent of having actual negotiations preceded by an initial Dowling - Gilpatric presentation to the FRG designed to stimulate the Germans to lay the groundwork for the necessary political decisions, to impress upon them the need for action, and to elicit from them suggestions as to how best to proceed.)


For the reasons set forth by the Ambassador the current balance of payments negotiations should not be used as a vehicle for dealing with the foreign exchange problems arising from the possible augmentation of US forces in Germany. The current negotiations should be concluded as expeditiously as possible. The US augmentation problem should be raised separately at the political level along the lines proposed by the Ambassador.

53. Editorial Note

On October 24, 1961, Deputy Secretary of Defense Roswell Gilpatric and German Defense Minister Franz Josef Strauss signed a memorandum of understanding that envisioned the creation of a military cooperative logistics system between the two governments. These arrangements resulted from the U.S. Government's recognition of the need to provide a sufficient supply line for the expanding Germany military forces and the economic advantages of cooperation in the military production field as well as the necessity of dealing with the drain on the U.S. balance of payments caused by the stationing of substantial numbers of U.S. military forces in West Germany.

The text of the memorandum of understanding reads as follows:

"The Minister of Defense of the Federal Republic of Germany and the Deputy Secretary of Defense of the United States have reviewed the status of the studies which have been jointly conducted by the two countries of the possibilities of increased mutual cooperation and assistance in military matters. They have concluded that a cooperative logistics system is feasible and desirable, and express their intention that formula agreements and detailed procedural arrangements to establish such a system be entered into expeditiously between appropriate representatives of the two countries.

"It is understood that the cooperative logistics system contemplated by this memorandum will include the following major features: cost sharing in research and development projects; procurement services in the United States; depot supply support and depot maintenance services in Europe; sale of United States war reserve stocks prepositioned in Europe; storage facilities; and joint use of major and local United States training areas in Germany.

"It is anticipated that under the proposed cooperative logistics system payments by the Federal Republic of Germany to the United States for materiel and for research, development, procurement, supply, maintenance and other logistic services, including the Federal Republic of Germany's share of the system's capital and operating expenses, will be sufficient to insure that military transactions of direct benefit to the U.S. balance of payments are large enough to offset the transactions of U.S. forces in Germany of benefit to the FRG balance of payments, on the basis of such forces presently stationed in Germany or heretofore announced for movement to Germany. In the event of further deployment of U.S. forces to Germany, the two governments will consider methods whereby the balance of payments effect of such movements can be adjusted to their mutual benefit." (Telegram 981 from Bonn, October 24; Department of State, Central Files, 811.10/10 - 2461)

54. Telegram From the Embassy in France to the Department of State

//Source: Department of State, Central Files, 398.13/12 - 1361. Confidential; Priority.

Paris, December 13, 1961, 8 p.m.

3065. Eyes only for President from Dillon.

Dear Mr. President: During full day Ministerial session today/1/ agreement reached on IMF borrowing arrangement subject only to formal Cabinet approval where required, i.e., Canada, UK and maybe one or two others./2/ Total resources expected to be $6.1 billion plus 3 or 4 hundred million on side agreement with Swiss. Exact figure subject to possible minor adjustment after Canadian Cabinet action as we are asking 250 from them instead of 200 which they had expected. Only substantive change in formula proposed by US was adoption of requirement for 2/3 majority of participating countries to activate borrowing release. This is additional to our proposal for 60 percent weighted majority and was adopted to satisfy Dutch who at first held out for unanimous decision which would have created unacceptable veto situation.

/1/The Finance Ministers of Belgium, Canada, France, Federal Republic of Germany, Italy, Japan, the Netherlands, Sweden, United Kingdom, and the United States met in Paris on December 13.

/2/The agreement was formalized in an exchange of letters on consultative arrangements. For the approved texts of these letters, see the Supplement.

IMF Executive Board will consider and hopefully approve next week and participating countries will also exchange supplementary letters with French before end of year. Thus we will meet schedule set in Vienna of firm decision by year end so that necessary Parliamentary and Congressional action can proceed promptly.

Brief communique being issued tonight/3/ but documents remain classified until officially approved by govts such as Canada which require formal Cabinet approval.

Faithfully yours, Douglas.


/3/Text transmitted in telegram 3066 from Paris, December 13. (Department of State, Central Files, 398.13/12 - 1361)

55. Editorial Note

On January 8, 1962, the International Monetary Fund announced that its Board of Directors had reached agreement with 10 major industrialized countries on general arrangements by which the Fund could borrow supplementary funds. "This decision," the IMF announcement stated, "sets out the terms and conditions under which such borrowing will be possible in order to enable the Fund to fulfill more effectively its role in the international monetary system under conditions of convertibility, including greater freedom for short-term capital movements." Under these arrangements, the United States agreed to lend up to $2 billion to the Fund. For text of the IMF announcement, see American Foreign Policy: Current Documents, 1962, pages 251 - 253. The procedures the nations would follow in making supplementary funds available to the Fund were spelled out in exchanges of letters among the 10 nations. For texts of these letters, see the Supplement.

The agreement required approval by the necessary legislative bodies. The U.S. Congress enacted enabling legislation authorizing the Secretary of the Treasury to make additional U.S. loans to the International Monetary Fund in P.L. 87 - 490, approved on June 19, 1962. (76 Stat. 105) The U.S. Government announced its formal adherence to the IMF's general arrangements to borrow on October 24, 1962.

56. Memorandum From the President's Deputy Special Assistant for National Security Affairs (Kaysen) to President Kennedy

//Source: Kennedy Library, National Security Files, Kaysen Series, Balance of Payments, General, 7/1/62 - 7/15/62. Confidential.

Washington, July 6, 1962.



Attached are a number of papers/1/ which you have looked at or asked for in the past two weeks in connection with discussions of the balance of payments plus one or two items I thought you might find it worthwhile to read.

/1/None of the papers (tabs) is attached or has been found.

All these papers focus on the monetary or gold holding aspect of the problem rather than on the current balance of payments. As you are well aware, improvements in the current balance of payments will be at best slow. Such improvements do contribute to a stronger U.S. position in the international financial markets, they do not change the fundamental problem created by large foreign holdings of dollars which may be turned into gold at the pleasure of the holders. It is chiefly to this problem that the papers are addressed.

1. The first group of four items contains the proposal for the solution of the gold problem which you got from Walter Loucheim/2/ through Ted Sorensen (Tab 1) and comments on it. In accordance with your request, I asked Jim Tobin and Bob Roosa to comment on it. Doug Dillon added his comments to Roosa's (Tab 2, Tobin; Tab 3, Roosa; Tab 4, Dillon). Loucheim's most important idea is that we should agree with the other major holders of gold on what ratios of gold we should hold on our total foreign exchange reserves. This would result in the present world gold stocks supporting a greater total of liquidity, and would have the effect of ruling out runs on our gold by foreign central banks holding dollars. The removal of the 25 per cent gold cover requirement for our internal currency circulation which Loucheim suggests is a necessary step to putting his major proposal into effect.

/2/Walter C. Loucheim, Jr., investment consultant to the National Advisory Council on International Monetary and Financial Problems.

2. Tobin and Roosa agree on the accuracy of Loucheim's diagnosis of the problem and on the ultimate desirability of his proposal for agreed fixed reserve ratios. The great difference between them is that Tobin thinks both that this is a practical proposition and that it is necessary for us to move in this direction fairly soon. Roosa doubts its practicality, and further, he is much more certain that the steps the Treasury is now taking (see Dillon's memorandum) are as much as can usefully be done now. Roosa's doubts on the practicality of more far- reaching measures and his evaluation as to what should be done now are of course related.

These comments reflect a continuing difference in outlook between Treasury and CEA, which was revealed in the discussions in your office Thursday. Doug Dillon and Bob Roosa are confident that they have the situation well in hand, that the various steps they are taking--which by their nature tend to be obscure and closely held--are the best that can be done now and that any large-scale changes are impossible either because the Europeans won't agree to them or because it would be a dangerous sign of weakness on our part to propose them. The Council position, on the other hand, is that some fundamental change in the mechanism of international payments is necessary. Further, it is dangerous to wait to make this change for some indefinite future time, 2, 3, or 4 years from now when we achieve an equilibrium or a surplus in our balance of payments. The inhibiting influence the gold problem has exercised on our domestic economic policy and the high price we will have to pay in foreign policy programs if we feel we must cut overseas military and foreign aid expenditures to the bone are the chief arguments in favor of the Council's position that we make a large step in the near future. The differences of viewpoint involved are illustrated by the contrast of a single pair of figures. All the operations which Dillon describes in his memorandum have resulted in our holding $400 million worth of foreign currencies in our reserves. If we carried out a plan such as Loucheim suggests we might wish to hold something of the order of $3 or $4 billion worth of foreign currencies in our reserves and correspondingly less gold.

3. The next item is a paper of Tobin's which shows how a proposal for agreed gold reserve ratios would work in some detail (Tab 5). Although it is long, I think it is clear. If we accepted this idea we would probably want to choose something like his Plan II, which has the effect of increasing total world reserves by about 10 per cent. It involves, of course, a very substantial transfer of gold from U.S. to other countries as the price of protecting us against the risk of uncontrollable runs on our present holdings.

Walter Heller's covering note indicates that it is possible for you to give a gold guarantee without Congressional action. This, of course, does not answer the question of whether it is wise to do so.

4. Neither the Treasury nor the Council has given you comments on the letter of Bruno Saager/3/ to Prince Radziwill (Tab 6). At the meeting, Bob Roosa really didn't answer your question of what was wrong with Saager's idea of increasing the price of gold in all currencies. First, it is better than doing nothing. It will solve our short-run problem, as well as increasing world liquidity. However, it is far from the best way of solving the problem and it has a number of disadvantages. First, the benefits go to the Soviets, to the South Africans, and to a very small extent, to Canadian and American gold mining companies who will be encouraged to mine more gold by the higher price. We combine giving advantages to the Soviets and to the South Africans with increasing our own and Canadian production of something we don't really need. Second, it leaves the basic problem of the inadequacies of the international monetary mechanism untouched, although it clearly postpones the particular problem we have to face for a number of years. It will still be true that movements of gold need not be related to the real needs of international trade and finance. If we are to exert our efforts to get the continental European countries to agree to this proposition, we might do better to use these efforts toward a more useful end. Third, it is a move which creates something of the same problems for us that devaluation would create. It encourages gold speculators. It probably leads to some lack of confidence in the dollar, even though it helps our immediate position greatly. Since it will justify the passion for holding gold, it will strengthen rather than weaken speculative motives in the international money market. These are, after all, the source of a large part of our troubles.

/3/Not further identified.

5. The next item is a copy of a brief comment from the Economist on the Canadian situation which Dave Bell and Walter Heller both thought you should read (Tab 7).

At Tab 8, I attach Jim Tobin's paper which you read at Camp David the other day and asked me to send to Dillon for comment, in case you want to look at it again.

6. Finally, to raise the average level of the package, I include a brief essay that J.M. Keynes wrote in 1930 (Tab 9). It remains the most elegant statement of the fundamental proposition that a rational international payment system could dispense with gold altogether. The great attention paid to gold is another myth. The last few sentences are now again as apposite as they were in 1930. As you said of the Alliance for Progress, those who oppose reform may get revolution.


57. Memorandum From the Chairman of the Council of Economic Advisers (Heller) to President Kennedy

//Source: Kennedy Library, National Security Files, Kaysen Series, Balance of Payments, International Monetary Agreement, 8/62. No classification marking.

Washington, August 9, 1962.


Why we need an interim international monetary agreement

1. To prevent and to counter speculation against the dollar.

Against our $16 billion of gold are outstanding $20 billion in short- term foreign dollar claims (half official, half private). This potential liability can be vastly increased if and when our own citizens sell dollars abroad for foreign currencies or for gold. Consequently we are constantly in danger of a speculative "run" against the dollar and the U.S. gold stock. There have been three runs in the last two years--one in the fall of 1960, one in the spring of 1961 after the revaluation of the Deutschmark, and one this summer ended only by your Telstar statement./1/ An international agreement, and only an international agreement, will make it perfectly clear that there is no profit in speculating against the dollar--not just the U.S. but all the major monetary powers together will be publicly committed to concrete measures to defend it.

/1/Reference presumably is to President Kennedy's remarks about the U.S. dollar and gold at his press conference on July 23, which was transmitted abroad by the Telstar communications satellite. For text, see Public Papers of the Presidents of the United States: John F. Kennedy, 1962, p. 570.

2. To eliminate the whims and prejudices of currency speculators and bankers from the making of U.S. policy.

The vulnerability of the dollar to failures of confidence means that the U.S. Government is not master in its own house. For unless the international financial community, taking its cues from Wall Street, has "confidence," there can always be a speculative run.

Thus Chairman Martin reported to you that the dollar's "bad press" is the reason the Fed moved to higher interest rates this summer in spite of the economic slowdown at home--in effect, New York bankers have learned that one way to get higher interest rates on their loans is to talk down the dollar abroad.

Thus it is argued that a tax cut or a budget deficit must be avoided, or timed, or limited, so as to nurse "confidence."

Thus U.S. military or aid outlays may be bad for "confidence"--it takes a broader and longer view to see more in these policies than dollar drains.

Anyway the confidence game is one you can't win. Your intervention with Roger Blough/2/ and the decline in the stock market were interpreted in some circles as bad for the dollar; but a steel price increase and a stock market boom would also have been regarded as unfavorable signals.

/2/Chairman of the Board of Directors of U.S. Steel Corporation.

3. To allow the U.S. time for an orderly and constructive adjustment of its balance of payments.

We cannot and do not seek to avoid the adjustments needed to eliminate the basic deficit in our balance of payments. Our basic deficit is not large, and it is declining, cost and price increases in Europe are slowly but surely working for us. The basic deficit is a danger only because its continuation may contribute to a speculative run. By itself it is clearly within our ability to finance for several more years with gold or credit--or to eliminate by drastic action. But hasty drastic action is what we want to avoid--we don't want to impair the defense or development of the Free World, or to restrict trade with new tariffs and quotas, or to slow down economic growth in the U.S. and the Free World. With the time which an agreement would give us, we can balance our international accounts in an expanding and liberal world economy.

4. To avoid worldwide deflation.

There is a real danger, under present monetary arrangements, of a contagious epidemic of deflation. Present arrangements put much greater pressures to adjust on deficit countries than on surplus countries. When the Canadian dollar got in trouble, Canada took measures to deflate its economy, restrict its imports, and draw funds from the U.S. Yet Canada's problem was not inflation, but--like our own--unemployment and excess capacity. Canada's measures increased the pressure on the U.S. dollar. If we are forced to react similarly--tighter money, less expansionary budget policy, trade restrictions--we will in turn transmit deflationary pressures to Japan, the underdeveloped world, and even to Europe.

5. To provide time to negotiate a permanent improvement in the world monetary system.

Quite apart from the temporary difficulties of the dollar, the world payments system needs to be systematically improved: (a) to defend all currencies against speculative attacks, (b) to internationalize the burden of providing international money, which now falls almost wholly on the dollar, and (c) to provide for an orderly increase in world liquid reserves to finance growth in trade and production. A permanent agreement can be negotiated, and the necessary legislation (like repeal of the gold cover) obtained from Congress, only if the monetary system is in the interim defended against rumor and speculation.

6. Why a visible formal agreement is preferable to continued improvisation.

The techniques which would implement an interim international monetary agreement are essentially the techniques the Treasury has been so skillfully developing this last year and a half. But the Treasury has been using these techniques on a secret, day-to-day, piecemeal, ad hoc basis. There are great advantages to a systematic, public, formal, multilateral agreement governing their further use:

(a) Without such an agreement, improvised expedients to avoid, postpone, or conceal small gold losses run the risk of impairing the very confidence they are intended to sustain. Even foreign governments may not have full confidence in unilateral or bilateral operations to which they are not parties.

(b) Without an agreement, the U.S. does not obtain--in return for gold sales and guarantees given to foreign official and private dollar- holders--any assurance that present unguaranteed dollars will not be converted into gold. With an agreement, we will receive a quid pro quo of the greatest importance--a "standstill" on conversion of present official dollar holdings.

(c) Only an international agreement, convincing to the public in its announced size, duration, and concrete provisions, can effectively defend the dollar against speculation. Confidence in the dollar cannot be maintained by our protestations alone, or by U.S. currency operations alone, no matter how skillful. The only way to send speculators permanently to cover is to have a clear public commitment to defend the dollar from all the major monetary powers. In the absence of such commitments from other governments, our best efforts to reduce balance of payments deficits and gold losses have not succeeded in sustaining confidence.

Walter W. Heller/3/

/3/Printed from a copy that bears this typed signature.

58. Memorandum From President Kennedy to Secretary of the Treasury Dillon and the Under Secretary of State (Ball)

//Source: Kennedy Library, President's Office Files, Treasury, 8/62. Confidential; Limited Distribution. Also sent for information to the Chairman of the Council of Economic Advisers. Copies were sent to Sorensen, Bundy, Kaysen, and Bell.

Washington, August 24, 1962.

The visit of French Finance Minister Giscard d'Estaing to Washington last month/1/ and events and discussions here and abroad consequent on it have raised the question of whether the time is not ripe for a more explicit understanding among the major European countries and ourselves on international monetary matters. After a series of discussions among us culminating in our meeting of August 20,/2/ it now appears useful to take at least the first step of making soundings with the French, and others as appropriate, on the possibilities in this direction. Accordingly, you should each send your agreed representative, Assistant Secretary John Leddy, Department of the Treasury; and Assistant Secretary G. Griffith Johnson, Department of State; to Europe as soon as possible to make these soundings on a discreet basis with the following instructions./3/

/1/President Kennedy met with Giscard d'Estaing at the White House on July 20 from 10 to 10:51 a.m. (Kennedy Library, President's Appointment Books) No record of their conversation has been found. A memorandum of Acting Secretary of State Ball's conversation with Giscard at 6 p.m. the same day is printed in vol. XIII, pp. 731 - 735.

/2/No records of these discussions have been found, but, as a result of the discussion at the August 20 meeting, President Kennedy directed the formation of two committees on international monetary problems, chaired by the Department of the Treasury. He also asked Treasury, through the machinery of the Cabinet Committee, to prepare by September 15 an analysis of the steps undertaken to bring the balance of payments into equilibrium by the end of 1963 and an estimate of the probable degree of success. (Memorandum from Kaysen to Dillon, Ball, and Heller, August 20; Kennedy Library, National Security Files, Balance of Payments, International Monetary Agreement, 8/62)

/3/For the report by Leddy and Johnson, see the attachment to Document 59.

1. The purpose of making an arrangement is to strengthen confidence in the dollar, limit unnecessary foreign takings of U.S. gold, and strengthen the system of international monetary cooperation. To this end, discussions should begin with the French to see what they had in mind and whether and how they are preparing to carry forward their initiative. Discussions should also be held with the French and then, as appropriate, with others regarding the proposed "Declaration of Ten" (Section III of the Treasury's Program for Further International Monetary Action),/4/ including means of increasing the automaticity of access to the IMF special resources.

/4/The Treasury's Program has not been found. For a draft of the declaration, see the enclosure to the attachment to Document 59.

2. Any interim arrangement--pending international consideration of long- term improvement in the international monetary system--should be a voluntary one undertaken on European initiative. Care should be taken to avoid the appearance of pressure from the U.S., since the belief that such pressure existed would be confidence-destroying rather than confidence-creating. The U.S. representatives shall not indicate that the U.S. might agree to any specific reciprocal concession or commitment which may be proposed.

3. One acceptable arrangement would entail the Six and the British exploring among themselves their practices in holding gold as part of their reserves. The starting point for these discussions might be a mutual recognition of the fact that each country will expect to maintain some basic "hard core" of its reserves in the form of gold, but that maintenance of a viable monetary system depends upon a mutual effort to economize in the use of gold for the remaining portion. Attention would thus be turned toward the absolute volume of desired gold holdings, rather than toward the potentially more intractable question of ratios. Mutually understood guidelines for the total gold holdings of each would then minimize pressures for competitive takings from the United States, and set an outer limit of, say, not more than $1 billion on their potential increases in gold holdings over the next two years, including any amount picked up from newly-mined gold as specified below.

(a) The possibility of using the present holdings of each country (Germany, $3-3/4 billion; UK, $2-1/2 billion; France, $2-1/2 billion; Italy, $2-1/4 billion; Netherlands and Belgium, $1-1/2 billion each) as broadly acceptable guides over some interim period should be canvassed. These amounts might need to be modified to reach agreement, so long as the maximum increases envisaged remain within the $1 billion limit cited above. The French could presumably take the lead by reaffirming their own target for holding approximately three-fourths of a maximum of $3- 1/2 billion of reserves in gold, but each country would need to make clear to the others its target and policies.

(b) These mutually understood guidelines should provide a basis for distributing the proceeds of any gold acquired through joint purchases in the London gold market, with any other sales or purchases of gold to be effected directly through or with the U.S. rather than through the London market.

(c) Increase in gold holdings consistent with the guidelines should be undertaken only in response to sustained additions to total reserves.

4. Alternatively, the arrangement might take the form of an understanding among the Six and the UK to hold increased reserves largely in dollars and only to a limited extent in gold in order to achieve an appropriate balance in the distribution of gold holdings between the U.S. and other countries. To be helpful the arrangement should be such as would not be likely to result in takings of gold in excess of (30% of the over-all U.S. deficit) (one-third of increased reserves) ($500 million per year). If the amount is much larger than this, it would not be confidence-producing. It would be understood that this amount would include any amounts acquired through joint purchases in the London gold market. Further, it would be desirable under this arrangement for any European deficits to be settled partly in gold.

5. It is desirable to avoid conditions in the understanding designed to increase the gold ratios of particular countries; e.g., Germany and Italy.

John F. Kennedy/5/

/5/Printed from a copy that bears this typed signature.

59. Memorandum From Secretary of the Treasury Dillon and the Under Secretary of State (Ball) to President Kennedy

//Source: Kennedy Library, National Security Files, Kaysen Series, Balance of Payments, International Monetary Agreement, 9/62 - 8/63. Confidential; Limited Distribution.

Washington, September 12, 1962.

Attached is the report which Assistant Secretary of the Treasury John Leddy and Assistant Secretary of State Griffith Johnson have made to us on their trip to Europe to confer with the French and British on the Declaration of Ten. A copy of the draft communique which the Finance Ministers of the Ten will issue after their meeting is attached to the report. It has been approved by us and by the French Minister of Finance and the British Chancellor of the Exchequer.

The communique is designed to show that the leading countries are continuing to work closely together in monetary matters; that the IMF standby is readily available for use; that present resources are adequate to maintain the present price of gold; that further study of long-range improvements in the monetary field is desirable, and that meetings of the Ten are not necessarily concerned with an emergency like a U.S. drawing.

France's partners in the Common Market agreed during the trip to a meeting of the Ten, but not to a communique. The French believe that they will, however, agree to its issuance, possibly with some changes reflecting their views.

The French Finance Minister said that he had discussed his proposal that gold takings from the United States be limited with the Chancellor of the Exchequer, who had agreed with him that high-level secret discussions should be carried on among the United States, the United Kingdom, France, Germany and Italy after the Bank-Fund meetings. Their ideas are still unclear to us and may not be known in full even to the most trusted subordinates of the two Ministers. We will follow this matter closely and keep you advised of developments.

George W. Ball

Douglas Dillon/1/

/1/Printed from a copy that indicates both Ball and Dillon signed the original.


Washington, September 10, 1962.

Memorandum for Secretary of the Treasury and the Under Secretary of State

In accordance with the President's memorandum of August 24/2/ we proceeded to Paris and London during the week of September 3 where we conferred separately with the French and British on the proposed "Declaration of Ten" (Section III of the Treasury's Program for Further International Monetary Action); and with the French on the steps they may be contemplating to carry forward Minister Giscard d'Estaing's initiative looking toward an arrangement which would have the effect of limiting unnecessary European takings of U.S. gold.

/2/Document 58.

Our conversations in Paris were with Minister Giscard d'Estaing; M. Andre de Lattre, Director of External Affairs of the Ministry of Finance; and M. Rene Larre, French Financial Counselor in Washington.

British officials present at our talks in London included Sir Frank Lee, Joint Permanent Secretary to the Treasury; Sir Denis Rickett, Second Secretary, Treasury Department; David Pitblado, U.K. Financial Counselor in Washington and Douglas Allen, all of the U.K. Treasury; and Maurice Parsons, Lucius Thompson-McCausland and F. J. Portsmore of the Bank of England. We did not meet with the Chancellor of the Excheq-uer.

Declaration of Ten

After some initial hesitation both the French and British warmly welcomed the idea of a ministerial meeting of the group of ten during the Fund and Bank meeting and the issuance by them of a communique. The attached draft text, which was approved by Washington during the course of our negotiations, has been endorsed by Minister of Finance Giscard d'Estaing, and Chancellor of the Exchequer Maudling. The significance of the communique lies in these points:

1. It would strengthen the public impression of continuing close monetary cooperation among the leading industrial countries.

2. It would make clear the ready availability of the $6 billion IMF standby for "decisive and prompt action."

3. It would emphasize the adequacy of present resources--from the IMF, from bilateral arrangements such as swaps and from existing reserves--to maintain the existing price of gold.

4. It would set the stage for international study of the means for long- run improvements in the monetary field.

5. It would lay the basis for further meetings of the Ten without provoking speculation that such meetings must necessarily be concerned with emergency matters such as a U.S. drawing.

The attitude of France's Common Market partners toward the proposed communique is still unclear. While we were having our first meeting with the British (Wednesday, September 5) the French discussed the proposal with the Monetary Committee of the Six. At our second meeting with the French on Thursday (the first having been on Tuesday) they reported that while all were agreed on the desirability of a ministerial meeting of the Ten, the group had not yet agreed in principle on the desirability of a communique. This hesitation was attributed primarily to the views of Van Lennep (Dutch Treasurer-General and chairman of Working Party 3) and de Stryker of Belgium. The Germans (Emminger of the Bundesbank) seemed to be on both sides of the question.

Upon hearing this view we informed de Lattre that we saw no point in a meeting without a communique. He responded by saying the French now thought a meeting very important; and that the rest of the Six would no doubt agree on a useful communique along the lines of the draft now virtually agreed upon by the U.S., U.K. and France.

The upshot is that the French will issue invitations to the meeting to all of the group of ten and will enclose with the invitation a copy of the attached draft of the communique. The ministerial meeting will be held on Tuesday, September 18 with issuance of the communique scheduled for Wednesday evening or Thursday morning after the Governors have made their major statements to the Fund. Officials of the Ten will meet Monday afternoon to work out such changes in the communique as may be needed to take account of views expressed by members other than the U.S., U.K. and France.

French Initiative on Limiting Gold Takings

We raised this question casually at the end of our meeting with Giscard d'Estaing (Tuesday, September 4) by asking whether he had any information to give us following his talks with Maudling on July 27. He said he was encouraged by Maudling's reaction. The two were in agreement that there should be high level secret discussions of the subject (which he did not at any time define) after the Fund and Bank meetings were out of the way; and that France, the U.K., Germany, Italy and the U.S. should be represented in these talks.

We did not press this matter further. Apart from its sensitivity and the probability that nothing much could be accomplished until after the Fund and Bank meetings, we had good reason to believe that open pressure from the U.S. on the French might lead them to think that political questions could be successfully interjected.

In London on Wednesday the British asked us what the French had said on this subject and we gave them the essence of Giscard d'Estaing's remarks. They observed that the whole affair was mysterious. The same view was expressed by the French officials the following day. We conclude that the full scope of the discussions between Giscard d'Estaing and Maudling may not be known even to their most trusted subordinates.

G. Griffith Johnson

Assistant Secretary of State for Economic Affairs

John M. Leddy

Assistant Secretary of the Treasury for International Affairs


Draft Communique of "Group of Ten" (9/6/62)/4/

/3/No classification marking.

/4/No record of the public release of this communique has been found.

In the course of the annual meeting of the International Monetary Fund, the representatives of the ten countries (the Finance Ministers of Belgium, France, Italy, Japan, the Netherlands, the United Kingdom and the United States, the Minister of Justice of Canada, and the Governors of the Central Banks of Germany and Sweden) participating in the Agreement to supplement the resources of the IMF concluded in December 1961,/5/ met in Washington on September ---- together with Mr. Per Jacobsson, Managing Director of the Fund.

/5/See Documents 54 and 55.

Since not all of the countries concerned have as yet concluded ratification, this meeting was of an informal character. Under the Agreement of December 1961, the French Finance Minister is responsible for arrangements between signature and the first formal meeting of the group. Accordingly M. Valery Giscard d'Estaing served as chairman.

The Ministers reviewed the development of the international monetary situation over the past year and the prospects for the future. They also discussed the international cooperative arrangements which are being brought into being to meet the developing monetary needs of the new era of convertible currencies and progressively freer international trade.

The Ministers were encouraged by the progress which has been made during the past year towards a better basic balance in international payments as a result of the measures already adopted in both deficit and surplus countries. They affirmed the objectives of reaching a balance at high levels of economic activity and by methods consistent with vigorous economic growth. While speculative and other short-term capital movements require continuing scrutiny, the means for coping with such movements have been reinforced in a number of ways and the ten Ministers agreed that these means would be used as necessary.

In this connection the Ministers emphasized the importance of the new arrangements for supplementing the IMF through the addition of $6 billion of further resources and stressed that these resources would be available for decisive and prompt action. They also noted that various techniques of cooperation are being developed among monetary author- ities of the various countries in order to facilitate the functioning of the international payments system and thereby to further the objectives of the Fund. The additional resources thus provided, together with world reserves and the existing resources of the IMF, are large enough to assure a stable exchange rate system and the maintenance of the existing price of gold.

The Ministers agreed that continuing study of the means for further improving the international monetary system in the years ahead was desirable.

The Ministers considered that these discussions were very useful and they agreed that similar meetings should be held from time to time.


[End of Section 4]

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