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International Monetary Relations Between the United States INTERNATIONAL MONETARY RELATIONS BETWEEN THE UNITED STATES, FRANCE, AND WEST GERMANY IN THE 1970S A Dissertation by MICHELLE FRASHER RAE Submitted to the Office of Graduate Studies of Texas A&M University in partial fulfillment for the requirements of the degree of DOCTOR OF PHILOSOPHY August 2003 Major Subject: History © 2003 MICHELLE FRASHER RAE ALL RIGHTS RESERVED INTERNATIONAL MONETARY RELATIONS BETWEEN THE UNITED STATES, FRANCE, AND WEST GERMANY IN THE 1970S A Dissertation by MICHELLE FRASHER RAE Submitted to the Office of Graduate Studies of Texas A&M University in partial fulfillment for the requirements of the degree of DOCTOR OF PHILOSOPHY Approved as to style and content by: _________________________ ________________________ H.W. Brands, Jr. Alex Mintz (Chair of Committee) (Member) _________________________ ________________________ Cynthia A. Bouton Lora Wildenthal (Member) (Member) _________________________ _________________________ Arvind Mahajan Walter Buenger (Member) (Head of Department) August 2003 Major Subject: History iii ABSTRACT International Monetary Relations Among the United States, France and the Federal Republic of Germany during the 1970s. (August 2003) Michelle L. Frasher Rae Chair of Advisory Committee: Dr. H. W. Brands, Jr. The United States acted unilaterally to terminate the Bretton Woods monetary system in August 1971, and international exchange rate management went from a regime of fixed to floating parities, much to the displeasure of the membership of the European Community. The Nixon, Ford, and Carter administrations adopted policies that heavily benefited US reform objectives and domestic economic goals, which frequently clashed with allied concerns, and damaged American monetary relations with France and West Germany. Yet, the inability of France and the Federal Republic of Germany to form cohesive economic and monetary policies throughout international negotiations or within the European Community (EC), allowed American desires to dictate the path and pace of European integration. France and Germany attempted, with limited success, to influence US monetary policy through bilateral diplomacy during years of exchange rate fluctuations, dollar devaluations, oil shocks, and payments deficits. Finally, President Valery Giscard d’Estaing and ChancellorHelmut Schmidt created the European Monetary System (EMS) in 1979, reversing the trend of half-hearted attempts at European integration so revalent the decade before. The EMS detached the EC’s currencies from the dollar’s control, was compatible with the reformed international monetary system, advanced a more independent European monetary identity, and formed the base for future monetary integration. As a result, the EMS, as the birthplace of the Euro, the single European currency launched in 2002, may soon rival the dollar’s position as the primary reserve currency. iv American monetary policies designed to improve the health of the dollar during the 1970s were a catalyst for European integration. However, as the European Union deepens its economic integration and the Euro grows in strength, it seems that U.S. policies created a regime and a currency that will challenge its dominant position in international monetary affairs. v For my family. vi ACKNOWLEDGMENTS Foremost, I would like to thank my committee members for their advice and patience during this process. Their support for such a challenging topic made all the difference. My chair H.W. Brands encouraged me to tackle such a demanding topic and believed that I had the abilities to carry it through. Cynthia Bouton, Arvind Mahajan, and Alex Mintz offered great advice on presenting and framing the subject. Lora Wildenthal agreed to join the committee late in the development of the dissertation and readily gave me helpful commentary. Finally, my gratitude goes to Arnold Krammer, who gave me encouragement throughout my academic career at Texas A&M University. As primary documents provided much of the sources for this work, a great number of archivists and institutions on both sides of the Atlantic deserve my gratitude. Thanks to Barbara Sloan at the Library European Union, Delegation of the European Commission to the United States in Washington, DC, the Nixon Presidential Materials staff at Archives II in College Park, Maryland, and Nixon audio archivist, Ron Soldano, for helping me navigate through the tapes for future reference. The staff at the Lyndon Baines Johnson Library at Texas University in Austin, offered their expert knowledge on both the John Connally papers and monetary subject files. The archivists at the James E. Carter library went out of their way to assist me, even going so far as to declassify some documents during my visit. The Lafayette College in PA, whose library staff was gracious enough to photocopy my microfilm requests from their holdings of William E. Simon’s papers. Special thanks goes to the Gerald R. Ford Foundation, for choosing to fund my visit to the Ford Presidential archives in Ann Arbor, Michigan. The staff’s kindness and professionalism made my research enjoyable and frustration free. For my research in France, I thank countless archival staffs and both American and French academics, among them Prof. Kenneth Moure, at the University of California at Santa Barbara, for their encouragement and guidance to locate and view materials. Madame Cavillon-Troadec and the staff at the Bank of France archives for submitting vii the necessary clearances I needed to view documents, Madame Anne de Castelnau at the Comité pour l’histoire économique et financière de la France, Mr. Laurent Dupuy at the Centre des Archives Economiques et Financieres, the National Archives in Paris for their assistance in navigating the rigors of both the Georges Pompidou and Valery Giscard d’Estaing papers. Special thanks goes to the archivists and their assistants at the 20th Century section at the National Archives for working around my short stay in Paris and making exceptional arrangements for me to view the French presidential papers during their difficult building renovations. An overdue thank you goes to André de Lattre, whom was generous with his time, knowledge, and assistance that were a great help to this study. Lastly, I want to acknowledge Preston Perluss, my assistant in Paris, for his language and archival skills. In Germany, Prof. Dr. Heinrich Volkmann, Prof. für Wirtschaftsgeschichte an der FU Berlin Universität, Prof. Dr. Michael Ulrich Brückner, Prof. Dr. Michael Bolle, at the Centre of Excellence for European Integration, Freie Universität Berlin, Prof. Dr. Dieter Lindenlaub at the Deutsche Bundesbank, as well as others took the time to answer my letters about archives in the Federal Republic, which greatly enhanced my understanding of the processes and contributed to my successes. Dr. Gertrud Lenz and Dr. Christop Stamm at the Willy-Brandt-Archiv im Archiv der sozialen Demokratie der Friedrich-Ebert-Stiftung in Bonn, archivist of the Willy Brandt and Helmut Schmidt papers respectively and the entire staff at the Friedrich-Ebert-Stiftung, were wonderful in their assistance to me during my visit. All of this research would not have been possible, however, without my German assistant Dani Kranz, whose professionalism, fantastic research and translation skills, and Rhinelandian hospitality made my time in Germany enjoyable and efficient to say the least. Personal thanks goes to the following persons or groups who have contributed to the retention of my sanity in many ways great and small. In no particular order, I wish to acknowledge Prof. Patricia A. Weitsman, a host of friends who copied documents for hours on end in archives, and the Department of History office staff who often went viii beyond the call of duty. Finally, I owe the most to my parents, and my husband. Nothing would have been possible without you. ix TABLE OF CONTENTS Page ABSTRACT.............. ............................................................................................iii DEDICATION .......... ............................................................................................iv ACKNOWLEDGEMENTS .................................................................................... v TABLE OF CONTENTS.......................................................................................ix ABBREVIATIONS... ..........................................................................................xiii CHAPTER I INTRODUCTION: CURRENCY AND POWER ................................... 1 Purpose.... ............................................................................................. 1 Organization.......................................................................................... 2 Literature Review.................................................................................. 6 II ALL THAT IS GOOD IS NOT NECESSARILY GOLDEN: 1944-1968 ........................................................................................... 10 A Short History of International Monetary Management .................. 11 Making Bretton Woods ....................................................................... 12 Bretton Woods in Practice................................................................... 18 The United States Balance of Payments Problem.............................. 22 The Fight for Liquidity and the Decline of the System ...................... 30 The System Teeters on Collapse ......................................................... 44 Conclusions .......................................................................................
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