Beyond Exorbitant Privilege: George Shultz, the U. S. Treasury, and the Origins of Dollar Hegemony, 1969-1979

1^ Jonathan Kirshner, “After the (Relative) Fall,” in The Future of the Dollar, eds. Eric Helleiner and Jonathan Kirshner (Ithaca: Cornell University Press, 2009): 206-208.

2^ David Calleo, The Imperious Economy (Cambridge: Harvard University Press, 1982): 54, 89; Eric Helleiner, States and the Reemergence of Global Finance (Ithaca: Cornell University Press, 1994): 114.

3^ Joanne Gowa and John Odell, two of the preeminent authors in the field of U.S. monetary history, devote little attention to the policy history behind the dollar’s role and instead focus on economic ideology and more time-bound policies like the closing of the gold window.^ Harold James comes the closest to offering a true history of the dollar’s role. He notes that American policymakers in the 1960s were protective of the dollar’s role because it allowed the deficit spending needed to fund U.S. military expenditures.^ Apart from his view that Nixon’s international economic team was driven by a nationalist, unilateral approach to policy, however, he does not draw any systematic conclusions about the development of American international monetary policy and does not attempt to explain how or why dollar policy evolved over time.^ Beyond these three authors, historical explanations of the dollar’s international role largely focus on economic factors and tend to ignore the contribution of economic policy.

4^ Barry Eichengreen, Globalizing Capital, 2^nd ed. (Princeton: Princeton University Press, 2008): 114.

5^ James, International Monetary Cooperation, 168-169.

6^ Odell, U.S. International Monetary Policy, 97-99.

7^ Robert V. Roosa, The Dollar and World Liquidity (New York: Random House, 1967): 8.

8^ Roosa, Dollar and World Liquidity, 29.

9^ Robert V. Roosa, “International Liquidity,” Treasury: International Liquidity, Roosa memo, July 20, 1962 [Electronic Record], Papers of John F. Kennedy, Presidential Papers, President’s Office Files, John F. Kennedy Presidential Library, Boston, MA, accessed February 8, 2014, retrieved from www.jfklibrary.org (hereinafter cited as Kennedy Papers): 4.

10^ Robert V. Roosa, “The New Convertible Gold-Dollar System,” Treasury: The New Convertible Gold-Dollar System, August 9, 1962 [Electronic Record], Kennedy Papers: 5-8.

11^ Roosa, “International Liquidity,” 19-20.

12^ U.S. Department of the Treasury, Annual Report of the Secretary of the Treasury, 1963 (Washington, D.C.: U.S. Government Printing Office, 1964): 369.

13^ C. Douglas Dillon, “Appraisal of Problems in the Proposal for an ‘Interim International Monetary Arrangement’,” Treasury: Interim International Monetary Arrangement, August 9, 1962 [Electronic Record], Kennedy Papers: 3-5.

14^ U.S. Department of State, Foreign Relations of the United States, 1961-1963, Volume IX (Washington, D.C.: U.S. Government Printing Office, 1995): 284.

15^ Gottfried Haberler, “Draft of Task Force Report on U.S. Balance of Payments Policies,” October 31, 1968, Haberler Task Force No. 1, Box 31, Files of Hendrik Houthakker, 1967-1971, White House Central Files (Nixon Administration), Richard Nixon Presidential Library, Yorba Linda, CA (hereinafter cited as Houthakker Files): 1.

16^ Wilson E. Schmidt, “Draft Introduction to the Haberler Report,” October 15, 1968, Haberler Task Force No. 1, Box 31, Houthakker Files: 8.

17^ Haberler, “Task Force Report,” 29.

18^ Haberler, “Task Force Report,” 28.

19^ U.S. Department of the Treasury, “Basic Options In International Monetary Affairs,” June 22, 1969, VGLIM 1969-60 to 1969-71, Box 10, Volcker Group Papers: 7.

20^ U.S. Department of the Treasury, “Basic Options,” 6-7.

21^ T.P. Nelson, “Strategy for Improving International Monetary Arrangements,” March 17, 1969, VGLIM 1969-31 to 1969-59, Box 10, Volcker Group Papers: 8.

22^ U.S. Department of the Treasury, “Basic Options,” 32.

23^ Paul McCracken, “The U.S. Balance of Payments and the International Monetary System: An Overview of the Policy Issues,” April 5, 1971, International Economic Policy Council, Box 32, Houthakker Files: 6.

24^ U.S. Department of the Treasury, “Contingency Planning,” June 4, 1971, Volcker-Willis-Cross, Box 8, Department of the Treasury Central Files, 04/01/1969 – 01/24/1981, Record Group 56, National Archives at College Park, College Park, MD (hereinafter cited as Treasury Central Files): Tab C, 1 and Tab D, 1.

25^ U.S. Department of the Treasury, “Contingency Planning,” 1.

26^ U.S. Department of the Treasury, “Contingency Planning,” Option B, 4.

27^ U.S. Department of the Treasury, “Contingency Planning,” Tab E, 3.

28^ U.S. Department of the Treasury, “Contingency Planning,” Unraveling Contingency, 2.

29^ U.S. Department of the Treasury, “Contingency Planning,” Unraveling Contingency, 4-5.

30^ U.S. Department of the Treasury, “Contingency Planning,” International Monetary Crisis Background, 18.

31^ U.S. Department of the Treasury, “Contingency Planning,” International Monetary Crisis Background, 40.

32^ U.S. Department of the Treasury, “Contingency Planning,” International Monetary Crisis Background, 56.

33^ U.S. Department of the Treasury, “Contingency Planning,” International Monetary Crisis Background, 60.

34^ George Shultz, in discussion with Author, July 24, 2013.

35^ Marina Whitman, “Reflections on the International Monetary System,” August 27, 1971, International Monetary System [2 of 2], Box 13, Files of Ezra Solomon, 1971-1973, White House Central Files (Nixon Administration), Richard Nixon Presidential Library, Yorba Linda, CA (hereinafter cited as Solomon Files): 2.

36^ Robert Solomon, “A Reformed International Monetary System Based on SDRs,” October 19, 1971, VG/LIM/71, Box 19, Whitman Files: 9.

37^ Paul Volcker, “Proposed Negotiating Stance,” August 30, 1971, MR-8, U.S. Plans (General), Box 6, Records Pertaining to Monetary Reform, 1968-1978, General Records of the Department of the Treasury, Record Group 56, National Archives at College Park, College Park, MD (hereinafter cited as Treasury Files on International Monetary Reform): 5.

38^ George H. Willis, “Over-all Goals,” November 8, 1971, New Monetary System 1969-1971, Box 12, Treasury Central Files: 2.

39^ Robert Solomon, The International Monetary System, 1945-1976 (New York: Harper & Row, 1977): 208.

40^ Paul Volcker, “A Start Toward Negotiating International Monetary Reform,” February 22, 1972, Treasury Dept. VG/LIM/72, Box 19, Whitman Files: 1.

41^ Paul Volcker, “Development of Proposals for U.S. Positions in Future Discussions of International Monetary Reforms,” February 22, 1972, MR-2, Volcker Group, Box 4, Treasury Files on International Monetary Reform: 1.

42^ Jack F. Bennett, “U.S. Objectives in Longer Term Reform of the International Monetary System,” March 13, 1972, MR-2, Volcker Group, Box 4, Treasury Files on International Monetary Reform: 3-4.

43^ Geza Feketekuty, “Discussions by Volcker Group Alternates of International Monetary Reform,” May 31, 1972, Treasury Dept. – [1972-1973], Box 44, Files of Herbert Stein, 1969-1976, White House Central Files (Nixon Administration), Richard Nixon Presidential Library, Yorba Linda, CA (hereinafter cited as Stein Files): 6.

44^ Solomon, International Monetary System, 220.

45^ Paul Volcker, in discussion with Author, October 31, 2013.

46^ U.S. Department of State, Foreign Relations of the United States, 1969-1976, Volume I (Washington, D.C.: U.S. Government Printing Office, 2003): 592-593.

47^ Office of Management and Budget, “An Analysis of a Dollar Standard/Flexible Exchange Rate World,” November 23, 1971, VGLIM 1971-31 to 1971-40, Box 9, Volcker Group Papers: 10.

48^ Office of Management and Budget, “Dollar Standard/Flexible Exchange Rate World,” 2.

49^ U.S. Department of State, Foreign Relations of the United States, 1969-1976, Volume XXXI (Washington, D.C.: U.S. Government Printing Office, 2009): 4-12.

50^ George Shultz, “Proposal,” September 23, 1971, International Monetary System [1 of 2], Box 12, Solomon Files: 1-3.

51^ Dom Bonafede, “White House Report: Peterson Council Helps Shape International Economic Policy,” National Journal 3 (1971): 2238.

52^ Gaylord Freeman, “The Current International Monetary Situation,” March 7, 1973, Dollar Crisis, Box 140, Gerald R. Ford Vice Presidential Papers, 1973-74, Gerald R. Ford Presidential Library, Ann Arbor, MI (hereinafter cited as Ford Papers): 47.

53^ John B. Connally, “Monetary and Trade Issues Aiming at the Azores Meeting,” December 10, 1971, JBC Memos for the President, 1971, Box 7, Records of Secretary of the Treasury George P. Shultz, 02/10/1971 – 05/03/1974, Record Group 56, National Archives at College Park, College Park, MD (hereinafter cited as Shultz Files): 6.

54^ James, International Monetary Cooperation, 242.

55^ Shultz interview.

56^ Solomon, International Monetary System, 233.

57^ The system, although substantially more flexible than fixed parities, was not quite free floating. Although many countries, including the U.S. and some major European nations, genuinely let their currencies float, others continued to peg to the dollar and still others used the oxymoronic “crawling peg” to manage their currencies. This is why Shultz referred to the system as “managed flexibility.”

58^ George Shultz, “Statement by Secretary Shultz on Devaluation of the Dollar,” New York Times, February 12, 1973, accessed February 28, 2014, http://query.nytimes.com/mem/archive/pdf?res=F30A11FF39551A7493C1A81789D85F478785F9.

59^ U.S. Department of State, Foreign Relations of the United States, 1969-1976, Volume XXXI, 248.

60^ Abdelal, Capital Rules, 26-27.

61^ U.S. Department of the Treasury, “Organization for Negotiations on Monetary Reform,” March 13, 1972, MR-2 Volcker Group, Box 4, Treasury Files on International Monetary Reform: 3.

62^ U.S. Department of State, Foreign Relations of the United States, 1969-1976, Volume XXXI, 201.

63^ U.S. Department of State, Foreign Relations of the United States, 1969-1976, Volume XXXVI, (Washington, D.C.: U.S. Government Printing Office, 2011): 416.

64^ Peter Fousek, “The Jump in Oil Prices and the World Economy,” April 2, 1974, Oil, Apr. 1974, Box B86, Federal Reserve Board Subject File, 1969-78, Arthur Burns Papers, 1969-1987, Gerald R. Ford Presidential Library, Ann Arbor, MI (hereinafter cited as Burns Papers): 1; U.S. Department of the Treasury, “The Financial and Economic Consequences of the Quadrupling of the Price of Oil,” October 15, 1974, International Economic Issues, Briefing Book ca. 10/15/74 (1), Box 135, Files of William L. Seidman, 1974-77, Gerald R. Ford Presidential Library, Ann Arbor, MI (hereinafter cited as Seidman Files): 1.

65^ Fousek, “Jump in Oil Prices,” 12.

66^ Effect of Petrodollars on Financial Markets, Hearing Before the Subcommittee on Financial Markets of the Committee on Finance of the United States Senate, 94^th Congress, January 30, 1975 (statement of William Simon, Secretary of the Treasury): 12.

67^ Judith Miller, “U.S. Securities Draw More OPEC Dollars,” New York Times, September 22, 1977, accessed February 28, 2014, http://query.nytimes.com/mem/archive/pdf?res=F5081FFE3D5C167493C0AB1782D85F438785F9.

68^ U.S. Department of State, Foreign Relations of the United States 1977-1980, Volume III (Washington, D.C.: U.S. Government Printing Office, 2013): 383.

69^ U.S. Department of State, Foreign Relations of the United States, 1977-1980, Volume III, 626.

70^ Spiro, Hidden Hand of American Hegemony, 104-105.

71^ Volcker interview.

72^ U.S. Department of the Treasury, “What Kind of International Monetary System is in the Interest of the United States?,” March 1972, Treasury Papers #1, Box 4, Treasury Files on International Monetary Reform: 19.

73^ U.S. Department of the Treasury, “Reserve Assets and Convertibility: U.S. Views,” January 5, 1973, VGA 1973-1 to 1973-22, Box 2, Volcker Group Papers: 21.

74^ Charles Siegman, “Some Comments on Treasury Draft – Some Comments on the Nature of Reserve Assets in the Context of a Reformed International Monetary System,” 1973, International Monetary Reform, Jan. 12-Apr. 30, 1973, Box B74, Burns Papers: 1.

75^ Robert V. Roosa, “The Jamaica Agreements, Testimony for Submission to the International Finance Subcommittee of the Senate Banking Committee,” August 27, 1976, Roosa, Robert V., Box K29, Burns Papers: 4.

76^ Menzie Chinn and Jeffrey Frankel, “The Euro May Over the Next 15 Years Surpass the Dollar as Leading International Currency,” National Bureau of Economic Research, Working Paper No. 13909, 2008: 19.

77^ Eswar Prasad, The Dollar Trap (Princeton: Princeton University Press, 2014): 18-19.

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