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In past crises, U.S. officials have tirelessly argued that foreign governments were at fault for keeping the values of their currencies unrealistically low in order to spur exports. This time, though, Nixon had already been contemplating a second dollar devaluation in order to strengthen the U.S. trade and payments balances; even in early January, German officials were picking up hints to that effect. When the flood of dollar-selling burst in Frankfurt and Tokyo, Nixon, Shultz and top White House aides realized that it would be simpler to devalue the dollar rather than try to work out a package of changes in other currencies. A float or upward revaluation of the mark, for instance, would have raised its price not only in dollars but also in francs, pounds and Dutch guilders, playing havoc with the Common Market's plan for monetary union. Also, if the U.S. did not devalue, there was a danger that foreign countries would have put up still more capital controls to keep out unwanted dollars. Germany, for instance, has placed strict controls on bank deposits by foreigners, borrowing abroad by Germans, and new investments in Germany by foreign companies.
To arrange the devaluation, the White House dispatched to Japan and Europe a most conspicuous secret agent: Treasury Under Secretary Paul Volcker, whose gangling figure (6 ft. 7 in.) caused him to be spotted on a street in Bonn when he was supposed to be at his desk in Washington. Though Volcker blew his cover, he accomplished his mission. He ascertained that the most important foreign governments would accept a U.S. devaluation, even though it would make American goods more competitive against their own products, and would not try to cancel the effect by devaluing their own currencies. He told this to Shultz by transoceanic telephone. One night call could be completed only after a secretary had been whisked from her home in Arlington, Va., to Washington by Government limousine to get Shultz's green scrambler telephone out of a safe in his office; she alone remembered the combination. By last Monday, Shultz was able to tell Nixon that the way was clear for devaluation.
For all the battering it has taken, the dollar is still the yardstick against which the values of all other currencies are measured, and a change in its price forces every other government to decide what to do with its own money. By week's end not all those decisions had been made, but this was the situation concerning the dollar's price:
> The dollar dropped 10% against other currencies that did not change their own official price—a powerful group that included the German mark, French franc, Dutch guilder and Soviet ruble.*
> It dropped more than 10% against the Swiss franc and the yen. The Japanese government let the yen float, and late last week its price relative to the dollar had risen nearly 17%—10% because of the devaluation, another 7% because of the float. The yen is now worth 34% more in dollars than before the Smithsonian agreement of 1971. The Swiss franc has floated up 12% in dollars from its last official rate.