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The Devaluation Rally. That resistance began to erode before the Rome meeting. Foreign Policy Adviser Henry Kissinger warned Nixon that the protracted financial impasse would hurt U.S. political relations with important allies. Federal Reserve Chairman Arthur Burns returned from a Wall Street visit last month with word that U.S. financial leaders were deeply worried that a prolonged monetary uncertainty would damage world business and that they ardently desired a quick settlement. The stock market underscored that point last week by staging an explosive "dollar-devaluation rally." The Dow Jones industrial average rose 43 points,to a Friday close of 860.
In Congress the once overpowering opposition to devaluation has all but vanished. Republican Senator Jacob Javits and Democratic Representative Henry Reuss have introduced a bill empowering Nixon to devalue the dollar as much as 10% by raising the official price of gold. Says Reuss: "If the President asked us for it tomorrow, we would pass it by the middle of next week. We would need only one day of hearings."
Stunned Silence. These shifts in opinion set the stage for a moment of supreme irony in Rome: the U.S. wound up suggesting a bigger dollar devaluation than many Europeans had asked for or even wanted. Although he was retreating from positions that he had previously stated with what Europeans considered offensive arrogance, Connally retained the air of a man in charge. Sitting at the head of the table as chairman of the meeting, he told his foreign colleagues that he had full power to negotiate currency values, and asked if they did too. Some did not; French Finance Minister Valery Giscard d'Estaing had to telephone President Georges Pompidou in Paris at least twice to confer about the changing situation.
Connally lowered the U.S. ante right at the start. The American delegation opened by asking for an average 11 % revaluation of foreign currencies against the dollar, and offering to drop the import surcharge in return. By some calculations, that would produce a $9 billion swing from deficit toward surplus in the U.S. trade balance, rather than the $13 billion switch that Connally had once labeled a non-negotiable demand. An official U.S. paper also stated a "presumption that there would be no change in the value of gold." In the oblique language of financial diplomacy, that statement meant the opposite of what it sounded like. The paper's statement that the U.S. merely presumed there would be no devaluation—not that it would insist there be none—was a hint that the U.S. was ready to talk devaluation.