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OCR Page 1 of 43THE CHAIRMAN OF THE
COUNCIL OF ECONOMIC ADVISERS
WASHINGTON
CONFIDENTIAL
May 17, 1971
THE PRESIDENT HAS SEEN
MEMORANDUM FOR THE PRESIDENT
Subject: The Recent International Monetary Disturbances
and Some Suggestions
The economic Policy Committee of the OECD met in Paris
last week, and I had agreed to be in Brussels one day also.
I found myself, therefore, in a position at first hand to
observe reactions to the international monetary turbulence.
In various discussions I tried to make certain basic points.
1. The D-mark and Dutch guilder have been allowed to
"float" to a small premium, and the Swiss franc and the Austrian
schilling were appreciated moderately. To call this a devaluation
of the dollar is to use language loosely. One could just as well
allude to a devaluation of the French franc, the pound, or the
Japanese yen. Moreover, the four countries who changed their
exchange rates account for roughly 11 percent of the developed
world's GNP. To say that the currencies of those who account
for the other 89 percent were devalued is to suggest that the
tail wags the dog.
2. The heavy flow of funds was originally induced by
differences in interest rates here and in Germany. Germany,
with an overheated economy, was pursuing tight monetary
policies, and the U.S., with domestic economic slack, was
pursuing more expansionist policies. Interest-sensitive funds
began to move into Germany. This calmed down in down in April,
but comments by Giscard d'Estaing of France and Karl Schiller
of Germany seemed to set a tidal wave going in early May.
Was the original movement the "fault" of the U.S. or Germany?
This is a frequently asked question, but it is the wrong one.
The real question is: "What is the problem?" After all when
two people are not in step, who is out of step?
DECLASSIFIED
E.O. 12958, Sect. 3.6
MR NLM 96-7
By WID
NARA, Date 9/3/96
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