THE PRESIDENT'S DAILY BRIEF 12 JULY 1973

• Document Type: FOIA
• Collection: President's Daily Brief 1969-1977
• Document Number (FOIA) /ESDN (CREST): 0005993873
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 15
• Document Creation Date: August 14, 2016
• Document Release Date: August 24, 2016
• Publication Date: July 12, 1973

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The President's Daily Brief
12 July 1973
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Exempt from general
declassification scheduk of E.O. 11652
exemption category 58(1
dulassified only on approval of
the Director of Central Intelligence
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CENTRAL INTELLIGENCE AGENCY
WASHINGTON, D.C. 20505
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July 1 2 , 1973
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THE PRESIDENT'S DAILY BRIEF
12 July 1973
PRINCIPAL DEVELOPMENTS
On Page 1 we detail and discuss the. rise of the
dollar in international monetary markets this week.
Laotian Prime Minister Souvanna has made some major
concessions in an apparent attempt to speed imple-
mentation of the peace accord of last February.
(Page 5)
At Annex, we examine some of the factors behind the
continuing turmoil in international money markets
and its impact on world trading patterns.
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INTERNATIONAL MONETARY DEVELOPMENTS
The dollar rose in international money markets
yesterday for the third straight day. Since the
beginning of the week, the dollar has recorded a
6- to 7-percent rise relative to the European joint
float currencies and 4 percent relative to the yen.
The dollar strengthened yesterday on the an-
nouncement that US swap lines with foreign central
banks had been substantially enlarged. Many traders
interpreted this announcement as a signal that the
United States was preparing to intervene in support
of the dollar. Bundesbank president Karl Klasen
added to this sentiment on Tuesday when he announced
that the Americans were prepared to act and wanted
to see the dollar supported.
Intervention alone is unlikely to lead to
a sustained dollar recovery in 19733 al-
though the longer-term outlook is some-
what more favorable. Intervention has
proved only a temporary solution to inter-
national currency instability in the past
and progress toward resolving US political
and economic problems will remain foremost
in traders' eyes.
The Committee of Twenty, the forum established
by the International Monetary Fund to devise a
monetary reform program, is meeting again in Wash-
ington. Although the group has been wrestling with
the problem of reform since last fall, there are
still wide differences among the major powers. The
recurring monetary crises have not made agreement
any easier. An analysis of the implications of the
current monetary crisis is at Annex.
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USSR
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USSR-CHINA
Predictably, Soviet media have criticized
the test?particularly in broadcasts di-
rected at countries affected by its fall-
out?charging that Peking's leaders are
"blind and deaf" to protests against
radioactive pollution. Moscow has con-
trasted the event with the trend toward
international detente and, in particular,
with the recent US-Soviet treaty on pre-
venting nuclear war.
Although Soviet media have reported
France's forthcoming nuclear test in the
Pacific, the Soviets have avoided criti-
cizing the French.
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Laos: Zones of Control According to Communist Map
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Dien Bien Phu
China
Lang Son.
Burma
Samneua ,
Hanoi.*
North
Vietnam
Haiphong.
Undefined
Thanh Hoa.
. San
Laos Soak
Udon Thani.
Dong Hoi
.*Sakon
Nakhon
Thailand
Saravane
South
Vietnam
Ubon
atchathani
MILES
Attopeu.
.K.ong
onturn.
Bangkok
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Cambodia
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LAOS
Prime Minister Souvanna has made some major
concessions in an apparent attempt to speed imple-
mentation of the peace accord of last February.
The Communist delineation plan requires
the Vientiane government to give up a
small amount of additional territory,
abandon most of its enclaves within Com-
munist-controlled areas, recognize Com-
munist enclaves within its own area of
control, and accept Communist territorial
conquests made since the cease-fire.
Souvanna's acceptance of such a limited
number of teams with no mobility would
preclude effective supervision of any
North Vietnamese withdrawal.
Other obstacles still stand in the way of
a settlement. The two sides have not yet
grappled seriously with the Communist de-
mands for a minimal International Control
Commission role or the disbanding of the
former irregular forces and the disman-
tling of their bases.
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IMPLICATIONS OF THE CURRENT MONETARY CRISIS
The current turmoil in international money
markets is the fourth in a series of crises that
have come with increasing rapidity since 1971, when
the, Smithsonian Agreement was concluded.
The monetary crises last year and this reflect
in part not only continuing US payment problems,
but also a change in the psychology of international
currency traders. Money managers, representing the
large multinational firms and commercial banks and
some less developed countries including the oil pro-
ducers, came to believe that further currency realign-
ments were likely. Windfall profits could be made
with limited risk or the value of assets protected by
shifting from dollars into the stronger currencies.
To the extent that traders acted on their belief it
became a self-fulfilling prophecy.
The repeated money market crises have not pro-
duced the worldwide recession that many feared.
Despite continuing international monetary instabil-
ity and the growingweakness of the dollar, world
trade is expanding rapidly. Indeed it has acceler-
ated ?in line with the current worldwide economic
boom. Exporters and importers have taken steps to
reduce their exchange risks through contract adjust-
ments or dealings in the exchange market, but this
has generally resulted in only a small increase in
trading costs.
? Continuing international monetary instability
has, however,.exacerbated the inflation problem in
countries that are the object of speculative capi-
tal inflows. West Germany in particular has had to
absorb massive currency inflows--first dollars and
then guilders, French francs, and Danish crowns--
and this has complicated Bonn's policy of slowing
the growth in the money supply. Because of the
anti-inflationary consequences of revaluation and
subsequent monetary stability, Germany has generally
been more willing to revalue than other countries.
The impact of the dollar's continuing devalua-
tion on the trade balances of our major trading
partners has so far been small. In part this is
because most of their trade is not with the United
States and because of lags in the adjustment process.
The dollar's devaluation lowers the price of US ex-
ports in foreign markets, but this leads to an in-
crease in US sales only after consumers adjust their
purchases to the new prices.
(continued)
Al
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The current worldwide boom has also reduced
and masked the impact of the continuing currency
realignments. The US economy and the economies
of most of our major trading partners are expanding
rapidly--too rapidly in some cases. This has less-
ened concern about the potential impact of cheaper
US goods.
These factors explain the lack of strong coun-
termeasures so far against the devaluation.. Only a
handful of new foreign export subsidies and tax in-
centives have been introduced. Nevertheless, some
Europeans, the French in particular, feel that the
dollar has been devalued too far and that the United
States has been given an unfair competitive advantage.
The United States, after an adjustment period,
will benefit from the increased foreign demand for
our exports now made cheaper by devaluation. In-
vestment in this country also has become more at-
tractive to foreigners. Both of these factors will
help .create jobs and reduce unemployment in the US.
To 4 lesser extent the UK and Italy, whose curren-
cies also have depreciated, will similarly benefit.
On the other hand, US imports are more expen-
sive because of devaluation and this contributes to
?domestic inflation. The price of oil imports in
particular has increased because of successful con-
tract renegotiation by the oil-producing countries
as well as through the direct effects of the deval-
uation.
The price advantage gained by US agricultural
and other raw material exports through devaluation
and what apparently has been a desire to convert
unwanted dollars into commodities has probably also
played a role in the disruption of world commodity
markets. The resultant introduction of controls on
US commodity exports has dampened US balance of pay-
ments prospects and intensified pressures for a
further dollar devaluation.
Some of the advantages of the dollar deprecia-
tion to Washington are disadvantages for our trading
partners. Although their trade position has been
little damaged so far, in the longer term cheaper
US goods and increased investment in the US rather
than in their domestic economies mean domestic job
opportunities forgone.
(continued)
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Our trading partners will consequently become
more agitated about continuing international mone-
tary instability and the weakness of the dollar when
their current economic boom comes to an end. A
downturn is inevitable if only because of foreign
governments' action to slow down the accompanying
domestic inflation. Then, a slowdown in their ex-
ports and an increase in their imports and foreign
investment (because of the currency realignment)
will exacerbate the slowdown in their domestic
economies.
The growing concern of our trading partners
will adversely affect progress toward trade and
monetary reform. The monetary situation has clearly
helped Paris in its insistence that the multilateral
trade talks take account of the advantages Washing-
ton may gain from a devalued dollar, and this could
stall the talks indefinitely. Progress toward in-
ternational monetary reform in the ongoing discus-
sions under the auspices of the International Mone-
tary Fund already has been made more difficult by
foreign concerns resulting from the dollar's decline
Difficulties in the economic negotiations will com-
plicate our political and military negotiations.
In the case of Europe in particular, the continuing
monetary crises are likely to make achievement of
US political objectives more difficult.
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