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October 1936.


On September 25, 1956, the Governments of the United States,
Great Britain, and France announced, in connection with the proposed
readjustment of the French currency, that they would seek to avoid
as far as possible, while taking into full account the requirements
of internal prosperity, any disturbance of the basis of international
exchange resulting from the readjustment.
Following this announcement the French Parliament authorized
the Government to fix the gold content of the franc at between 65.6
and 74.9 percent of its former content. On October 20, 1936, and
in comparison with averages for July 1936, the franc had depreciated
29.7 percent in terms of the dollar and 27.8 percent in terms of the
pound. The pound, in turn, had depreciated 2,6 percent in terms of
the dollar.
In order to appreciate the significance of these developments
it is necessary to examine the interests of the various countries
and the possible alternatives.
The deflationary pressure on France, arising from the appreciation of the franc since 1931 in terms of virtually all other currencies, was severe. Both her foreign and domestic trade was suffering
and she felt impelled to take various measures restricting the volume
of imports. Political crises and the expectation of eventual devaluation led to very heavy outflows of gold, which in turn exerted

further deflationary pressure on the domestic economy. It became
evident that it was no longer to France's interests to maintain
the existing gold value of the franc. Before taking any steps to
lower the gold content of the franc, however, it was to France's
interests that she should gain some assurance that the dollar and
the pound would not depreciate correspondingly and hence nullify
any benefits she Bight derive from her action.
It was believed that the interests of the United States would
not be adversely affected by a reasonable realignment of the franc.
We do not desire a competitive advantage. What we do desire is
the avoidance of a competitive disadvantage, A reasonable depreciation of the franc might be expected to lead not only to an increase
of our purchases from France but also, in so far as it led to an
increase in business activity in France, to an increase in our sales,
This would be particularly true if the depreciation was accompanied
by some relaxation of quotas and exchange controls. In any case,
our trade with France is small in comparison with our total world
trade and we do not compete to any extent in third markets• In
addition to these considerations, the continued inflow of gold from
France was proving embarrassing to us and was raising serious problems of future control in connection with excess reserves of member


While, however, we had probably more to gain than to lose
by a reasonable readjustment of the franc, our interests were
more closely affected by the possible reaction to this step of
sterling and of the currencies that are either linked to sterling
or follow sterling. The American attitude is that the range in
which the dollar and the pound have fluctuated in the past year
is equitable, in the present circumstances, for both countries.
Any substantial depreciation of sterling would, therefore, be
regarded as prejudicial to our interests.
The general feeling in Great Britain was that the franc was
overvalued and that a reasonable devaluation would not be prejudicial to British interests, particularly if it was accompanied by
some relaxation of quotas. At the same time there is a widelyheld feeling in England that the pound has for some considerable
time been too high in relation to the dollar.
The significance of the tripartite announcement may be judged
in the light of these considerations. France was able to devalue
without having its action nullified by a corresponding fall in
the pound and the dollar. The United States gained through having
the substantial fall in exchanges confined to those countries whose
currencies were, in its opinion, previously overvalued.This obviated
the necessity of its adopting vigorous action to prevent the
depreciation of currencies which it feels are not overvalued in
relation to the dollar.


It may be argued, therefore, that developments to date have
been eminently satisfactory from our point of view. A major
crisis, which had overhung the exchange markets for two years
and which might easily have been the occasion for an outbreak
of competitive depreciation between the leading currencies of
the world, has been safely weathered.
As for the future, the situation remains substantially unchanged, as far as Great Britain and the United States are concerned, from that which prevailed before the French devaluation.
Both countries, while reaffirming

their purpose to continue a

policy one object of which is to maintain the greatest possible
equilibrium in the system of international exchange and to avoid
the creation of any disturbance of that system, do so with the
reservation that their policy with regard to international monetary
relations must take into full account the requirements of internal
prosperity. The announcement contains no commitments as regards
definite exchange ratios and the various countries preserve their
freedom of action.
The agreement of October 13, 1956, according to which the
three governments undertake to sell gold to each other, is expected
to facilitate the operation of the various exchange funds in
smoothing out fluctuations in the exchange market, but it has not
in any way established fixed and unalterable ratios between the


eurrencies, since the prices at which gold will be sold are subject
to change within twenty-four hours. How frequently, and by how
much, exchange rates will vary under this arrangement will only be
determined by experience. This arrangement, however, makes
possible temporary stability without entailing any commitments for
the future.
In conclusion, it may be said that perhaps the greatest significance of recent developments is the precedent they offer for future
cooperation between countries in the sphere of international monetary