Interview with Edwin M. Truman Former Staff Director, Division of International Finance
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Federal Reserve Board Oral History Project Interview with Edwin M. Truman Former Staff Director, Division of International Finance Date: November 30, 2009, and December 22, 2009 Location: Washington, D.C. Interviewers: David H. Small, Karen Johnson, Larry Promisel, and Jaime Marquez Federal Reserve Board Oral History Project In connection with the centennial anniversary of the Federal Reserve in 2013, the Board undertook an oral history project to collect personal recollections of a range of former Governors and senior staff members, including their background and education before working at the Board; important economic, monetary policy, and regulatory developments during their careers; and impressions of the institution’s culture. Following the interview, each participant was given the opportunity to edit and revise the transcript. In some cases, the Board staff also removed confidential FOMC and Board material in accordance with records retention and disposition schedules covering FOMC and Board records that were approved by the National Archives and Records Administration. Note that the views of the participants and interviewers are their own and are not in any way approved or endorsed by the Board of Governors of the Federal Reserve System. Because the conversations are based on personal recollections, they may include misstatements and errors. ii Contents November 30, 2009, Morning (Part 1 of 3 of the Interview) ..................................................... 1 General Background and Experience at Yale University ............................................................... 1 Joining the Federal Reserve Board Staff ...................................................................................... 23 Early Years in the Division of International Finance and Forecasting ................................... 25 November 30, 2009, Afternoon (Part 2 of 3 of the Interview) ................................................. 49 Early Projects and Reforming the International Monetary System .......................................... 49 Becoming International Finance Division Director ...................................................................... 57 United Kingdom and Mexican Financial Crisis in the 1970s ................................................... 60 Goals as Director ...................................................................................................................... 68 February 1986 Discount Vote ....................................................................................................... 72 Board Members in the 1980s .................................................................................................... 78 Chairman Miller and the Carter Administration .......................................................................... 80 Chairman Arthur Burns ................................................................................................................ 85 Fighting Inflation, Chairman Paul Volcker, and 1979 Operating Procedures .............................. 86 Catherine Mallardi and the Role of Executive Secretaries ......................................................... 100 Exchange Rate Policy ................................................................................................................. 105 Dollar Exchange Rate ................................................................................................................. 126 Exchange Rate Forecasting ......................................................................................................... 131 Exchange Market Intervention .................................................................................................... 138 Banks’ Exchange Rate Risk and Herstatt risk ............................................................................ 155 Responsibilities for Exchange Rate Operations .......................................................................... 156 Board’s Overall Role in International Matters ........................................................................... 159 International Economic and Financial Crises ............................................................................. 162 1982 Mexican Financial Crisis ............................................................................................... 166 The Volcker Plan..................................................................................................................... 169 iii The Baker and Brady Plans .................................................................................................... 175 The International Lending Supervision Act of 1983 ............................................................... 179 1995 Mexican Crisis ............................................................................................................... 184 Thailand Crisis ....................................................................................................................... 194 Korean Crisis .......................................................................................................................... 197 Policy Response to Crises ....................................................................................................... 201 Relationship with China .............................................................................................................. 212 Former Soviet Union .................................................................................................................. 216 Technical Assistance Generally .................................................................................................. 218 December 22, 2009 (Part 3 of 3 of the Interview) ................................................................... 222 The Fed’s Membership in the Bank for International Settlements ............................................. 222 Herstatt Bank .............................................................................................................................. 232 The Role of the Bank for International Settlements ................................................................... 240 Advancement of Minorities at the Board .................................................................................... 261 Board Culture .............................................................................................................................. 263 Writing Experiences at the Board ............................................................................................... 267 Management Styles ..................................................................................................................... 270 Compromising ............................................................................................................................ 271 Chairman G. William Miller ....................................................................................................... 273 Title of Staff Director versus Director ........................................................................................ 276 Relationships among Divisions .................................................................................................. 278 Relationship with Treasury ......................................................................................................... 280 Management ................................................................................................................................ 287 Briefings ...................................................................................................................................... 291 Relationship with Chairmen and Other Board Members ............................................................ 292 Federal Reserve Banks ................................................................................................................ 300 iv Succession Planning ................................................................................................................... 306 Morale in the Division ................................................................................................................ 310 Departure from the Board ........................................................................................................... 311 Treasury International Capital System (TIC) ............................................................................. 313 Contagion .................................................................................................................................... 318 Conclusion .................................................................................................................................. 326 v November 30, 2009, Morning (Part 1 of 3 of the Interview) MR. SMALL. Today is Monday, November 30, 2009. This interview is part of the Oral History Project of the Board of Governors of the Federal Reserve System. We are interviewing Edwin M. (Ted) Truman, a former [staff] director of the Board’s Division of International Finance (IF) from 1977 to ’98. He followed Ralph Bryant as director of that division. Mr. Truman worked at the Board from 1972 to ’98. I am David Small, from the FOMC (Federal Open Market Committee) Secretariat in the Division of Monetary Affairs. I am joined by other former and current staff of the Divison of International Finance: Karen Johnson, a former director of the division; Larry Promisel, a former senior associate