From our archive: The Blessing letter
The so-called Blessing letter, dated 30 March 1967, forms part of the correspondence between the President of the Deutsche Bundesbank at the time, Karl Blessing, and the then Chairman of the Board of Governors of the US Federal Reserve System, William Martin. In the letter, Blessing addresses US concerns that the Bundesbank might convert US dollars into gold on a huge scale.
Such US fears have to be seen against the backdrop of the Bretton Woods Treaty, which was still in force at the time and under which the US dollar was backed by gold. The terms of this Treaty meant that the United States had an obligation to convert dollars into gold on demand. Since the end of the 1950s, however, there had been fears in the US that the right to convert dollars into gold could be used on a large scale, especially by European countries, where dollar surpluses had built up owing to the substantial US military presence and the expansion of investment by US industry. Converting US dollars en masse could have used up US gold reserves and negated belief in the dollar actually being backed by gold. This risk became very acute in the mid-1960s owing to the economic situation of the United States at the time, which had already run up a large balance of payments deficit in the wake of the Vietnam War and the associated arms build-up. This pressure was made more intense by increased inflation in the United States, which threaten to spread to countries in Europe on account of the Bretton Woods system of fixed exchange rates.
However, an actual reduction in the US deficit could have prompted the US government to conduct a more restrictive trading policy, reduce investment or withdraw American troops from Europe – few politicians in Europe would have been prepared to bear the consequences of this. In order to keep confidence in the dollar stable, the Americans therefore relied on a policy of mutual agreements on both sides of the Atlantic. This policy had the aim of achieving perpetual surplus dollar holdings in Europe, thus allowing the US to maintain its own balance of payments deficit.
The Blessing letter has to be seen in this historical context. In the letter, Karl Blessing promises, in effect, to refrain from a large-scale dollar conversion into gold. He stresses that such restraint represents the German contribution to international monetary cooperation and is intended to avoid any disrupting effects on the international foreign exchange and gold markets. In connection with the Blessing letter, historians often refer to an interview which Karl Blessing gave to the German magazine “Der Spiegel” in 1971, in which he himself calls into question his earlier concessions – “I state to you now that I feel myself to be personally culpable in this matter. I should have been more rigorous with regard to the US. The dollars that we were accumulating should simply have been rigorously converted into gold.” He explained that, at the time, has fears of the foreign policy implications, which would have led to the withdrawal of American troops from Germany, had been one of the factors that led him to give in to US demands.
- See “Der Blessing-Brief”, 30 March 1967 (Source: Historical Archive of the Deutsche Bundesbank, Frankfurt am Main, Shelfmark: HA BBK B 330/10799). The Blessing letter is also archived at the Lyndon B. Johnson Presidential Library in Austin, Texas, http://www.gata.org/files/BundesbankLetter-03-30-1967.pdf
- Heise, Arne, Grundlagen der Europäischen Währungsunion. Theorie, Institutionen, Politik, Düsseldorf 1997, p 41.
- See Zimmermann, Hubert, Western Europe and the American Challenge: Conflict and Cooperation in Technology and Monetary Policy, 1965-73, in Journal of European Integration History 6:2 (2000), pp 85-110, p 88.
- Ibid pp 89-90. The possible implication of the US balance of payments deficit for the stability of the dollar, the leading currency in the Bretton Woods system, therefore shaped the debate on financial policy in the 1960s. See Schmidt, Heide-Irene,“The Embarrassment of Strength”: Die deutsche Position im “International Monetary System” 1958-1968, in Deutschland, Großbritannien, Amerika. Politik, Gesellschaft und Internationale Geschichte im 20.Jahrhundert (edited by Ursula Lehmkuhl, Clemens A. Wurm and Hubert Zimmermann), Stuttgart 2003, pp 155-194, p 164.
- See Zimmermann, Hubert, Western Europe and the American Challenge: Conflict and Cooperation in Technology and Monetary Policy, 1965-73, in Journal of European Integration History 6:2 (2000), pp 85-110, p 89.
- Ibid p 88.
- See correspondence on the Blessing letter. Among historians, there is some dispute about the precise significance of the letter. Hubert Zimmermann, for example, interprets the letter as the Bundesbank waiving its autonomy: “the Bundesbank (with the Blessing letter) deprived itself of an important aspect of monetary autonomy” (quoted from Hubert Zimmermann, Money and Security. Troops, Monetary Policy, and West Germany’s relations with the United States and Britain 1950-1971, Cambridge University Press, Cambridge 2002, p 227). Heide-Irene Schmidt, on the other hand, disagrees with this interpretation by pointing to German interests: “Der Blessing Brief beschreibt vielmehr die bisherigen Maßnahmen der Bundesbank und die zugrunde liegenden Intentionen internationaler monetärer Kooperation; er betont die Absicht, diese Politik fortzusetzen. Ein Autonomieverzicht kann daraus umso weniger abgeleitet werden, als die Bundesbank vor und nach diesem Brief Ansätze ablehnte, die USA über devisenpolitische Maßnahmen (d.h. Verkauf von Dollar gegen Gold) zu einer „vernünftigeren“ Zahlungsbilanzpolitik zu zwingen. Die damit verbundene Destabilisierung des Wirtschafts- und Währungssystems lag nicht im deutschen Interesse.” [=The Blessing letter in fact describes the measures taken by the Bundesbank hitherto and the underlying aims of international monetary cooperation; it stresses the intention to continue this policy. Inferring a waiver of autonomy is even less feasible given that, before and after this letter, the Bundesbank had rejected any attempts to use foreign exchange policy measures (ie the sale of dollars for gold) in order to force the United States into a “more reasonable” balance of payments policy. The associated destabilisation of the economic and monetary system was not in Germany’s interests.](quoted from Schmidt, Heide-Irene, “The Embarassment of Strength”: Die deutsche Position im “International Monetary System” 1958-1968, in Deutschland, Großbritannien, Amerika. Politik, Gesellschaft und Internationale Geschichte im 20. Jahrhundert (edited by Ursula Lehmkuhl, Clemens A. Wurm and Hubert Zimmermann), Stuttgart 2003, pp 155-194, p 164.
- See Der Spiegel (19). 1971: “Der Brief gilt leider noch heute”, published 3 May 1971, http://www.spiegel.de/spiegel/print/d-43257718.html (retrieved on 11 January 2013)
- Zimmermann, Hubert, Western Europe and the American Challenge: Conflict and Cooperation in Technology and Monetary Policy, 1965-73, in Journal of European Integration History 6:2 (2000), pp 85-110, pp 89-91. Quoted by Karl Blessing from his own recollection of a telephone conversation with John McCloy, who at the time was the US negotiator in the Trilateral Negotiations,“Und ich habe ihm gesagt: Mein lieber McCloy, Ihre Situation ist klar, das ist ein Zahlungsbilanzproblem bei Ihnen, nichts weiter. Sie haben gesehen, daß wir vernünftig sind und unsere Dollar nicht in Gold konvertieren.” [= And I said to him, my dear McCloy, your situation is clear; what you have is a balance of payments problem, nothing more. You have seen that we are being reasonable and not converting our dollars into gold]. And regarding his assessment of the external situation at the time: “Ich habe damals eingesehen, wenn die Amerikaner abziehen würden, dann hätten wir natürlich außenpolitisch unter Umständen eine Malaise riskiert. Ich habe die Dinge immer ernster gesehen als sogar die Bonner Regierung, mit Ausnahme von Schröder. Der hat mich immer gebeten, den Amerikanern zu helfen.” [= I realised at the time that, if the Americans were to withdraw, we would naturally have perhaps been risking a malaise in terms of foreign policy. I invariably viewed things more seriously than even the government in Bonn did, except for Schröder, who always asked me to assist the Americans.](quoted from Brawand, Leo, “Wohin steuert die deutsche Wirtschaft?”, Munich 1971, pp 61-62).