Volcker

Influential Participants Amongst the Camp David summit participants, the Under Security of the Treasury for Monetary Affairs, Paul A. Volcker, Secretary of Treasury, John B. Connally, Jr., the Chairman of the Federal Reserve, Arthur F. Burns, and the director of the Office of Management and Budget, George P. Shultz probably played a significant role in the initiative announced by President Nixon’s a nationally televised address on August 15, 1971. Volcker had been leading the effort to stabilize the international monetary system for the Nixon’s administration. The new Secretary of Connally replaced David M. Kennedy in earlier in the year was Volcker’s new boss. Burns who had been reluctantly loosening credit to accommodate the administration’s desired for
expansionary monetary policy was there with legitimate concerns to restore dollar stability. Finally, Shultz, the Non-Keynesian economist or a monetarist, who despised Bretton Woods.
Paul Volcker first served in the public sector as an economist for the Federal Reserve from 1952 to 1957. After a brief interlude in the private sector working for Chase Manhattan Bank, he returned to the public sector as the director of the Treasury’s Office of Financial Analysis in 1962. In 1965, he rejoined Chase again for a second tour. Notwithstanding being a Democrat, he became the undersecretary for monetary affairs, the third-highest job in the Treasury Department in 1969. Nevertheless it was his tenure at the Federal Reserve that shaped his views on the dollar and gold.
The Vice President of the Federal Reserve Bank of New York, Robert Vincent Roosa, well known for his ingenuity in creating policies to maintain the dollar and gold parity influenced Volcker’s views on the gold standard. For instance, Roosa created the Roosa bonds, which were exchange guaranteed swap agreements created to help preserve dollar and gold parity. Being a student of Roosa, Volcker probably ranked the pledge to gold alongside the pursuit of happiness for all citizens. For example, a colleague at Chase Manhattan bank described a perturbed Volcker on a day in October 1960 when the gold price hit $40. In 1969, as the undersecretary for monetary affairs and heading the working group on international monetary policy, Volcker began his plan to stabilize the dollar and Bretton Woods. Consequently, in March 17th, 1969, the Volcker Group paper outlined the possible approaches to stabilizing the international monetary system. The paper concluded the closing of the gold window was the longer-term option to implement when all other shorter-term plans failed to produce the desired goals. Subsequently, on July 16, 1969, the Volcker Group held a meeting to discuss various options to activate the
SDRs. By late 1970, SDRs had failed to make a meaningful impact. A memorandum from the U.S. Executive Director of the International Monetary Fund, William B. Dale to Volcker, indicated that the SDRs option is not large enough to make a significant impact. The large U.S. balance of payments deficits required a much larger SDRs allocation, making it an unrealistic option. Throughout 1971, further attempts were made to stabilize the monetary system. For instance, the Volcker group proposed amendments to the Bretton Woods Articles of Agreement on wider margins and floating rates to provide for exchange rate flexibility. By August 13, 1971, Volcker realized that all other options had failed and the closing of the gold window is the last option. Although favoring the immediate closure of the gold window, Volcker’s actions and recommendations leading up to August 13th, suggested he viewed it as a temporary action to restore and stabilize the system.