Office of the Historian

107. Memorandum From the Assistant Secretary of the Treasury for International Affairs (Bergsten) to the Under Secretary of the Treasury for Monetary Affairs (Solomon)1

Washington, February 15, 1978

SUBJECT

  • U.S. Policy Toward SDRs—A New Approach

A compelling new factor motivates me to suggest that we rethink our policy toward SDRs: they are the only means of creating liquidity through the IMF which does not require new legislation.

I therefore recommend that we reassess sympathetically our position on possible SDR creation beginning next year. I have always thought there was a straightforward case for doing so: the huge shift in payments balances occasioned by the increased price of oil created a clear need for additional world liquidity to finance the ensuing imbalances.

It is true that this argument was stronger in 1974 than in 1978. On the other hand, concern about the inflationary impact of additional SDR creation caused much greater concern then than would be logical now. Structural payments imbalances remain large, and the world economy remains sluggish—for the fourth straight year. There is thus a strong rationale for SDR creation.

The practical consideration is that, under existing Congressional authorization, the U.S. can participate in each basic period of SDR creation up to the level of the U.S. quota at the Fund. As soon as the Sixth Quota Increase comes into effect, our Fund position will rise from SDR 6.7 billion to SDR 8.4 billion. It is difficult to see how anyone could argue a need for appropriations to let us receive SDR, and the existence of adequate authorizing legislation would even avoid any occasion on which that issue might naturally arise.

This means that the U.S. could take SDR 8.4 billion in each basic period of SDR creation without further Congressional action. Hence about SDR 40 billion could be created on a global basis over each succeeding five years, if that were to represent the “basic period” as originally intended. (The only “basic period” to date was for three years, which would enlarge even further the scope for action.) This would permit a [Page 331] sizeable expansion of liquidity over the next few years—obviating our need to return to Congress for any IMF transactions for the foreseeable future.

I recommend that we give very serious attention to the possibility of meeting expanded IMF liquidity needs through SDR creation. The substantive case is there and the politics are right. You might want to call an IMG meeting on the topic shortly.

  1. Source: National Archives, RG 56, Records of Assistant Secretary of the Treasury for International Affairs C. Fred Bergsten, 1977–1979, Box 2, International Monetary. No classification marking. Drafted on February 14. Copies were sent to Cross, Leddy, Widman, and Jacklin.↩