Book Review: Three Days at Camp David: How a Secret Meeting in 1971 Transformed the Global Economy

Author: Jeffrey E. Garten

Originally published: 2021

Camp David is an iconic US Presidential Retreat in the wooded hills of Maryland’s Catoctin Mountain Park. Many historic meetings have taken place at Camp David. One of these was in August 1971 when the international monetary system underwent a significant transformation. One of the key outcomes of the August 1971 meeting was the end of the Bretton Woods system, which was established after World War II and was based on fixed exchange rates, with the U.S. dollar pegged to gold. In the book, Jeffrey E. Garten provides an insightful account of this pivotal Camp David meeting held by the then US President Richard Nixon.

Deteriorating Monetary Landscape

The late 1960s was a difficult time for the US economy. Gartner details how in 1970 and early '71, rising budget deficits and low interest rates caused more dollars to flow abroad, compelling US allies to absorb excess dollars to maintain currency links with the dollar. This led to increased currency printing, inflation, and subsequent measures by allies to raise interest rates or tighten budgets, risking job stability. This deteriorating international monetary scenario questioned the viability of the dollar-gold link under the Bretton Woods System, which mandated every major country’s currency fixed to the dollar. President Nixon recognized the urgent need for action to address the challenges facing the international monetary system. Seeking a secluded setting conducive to candid discussions and strategic planning, Nixon chose the presidential retreat of Camp David as the venue for this important meeting. Indeed, the Camp David gathering sparked profound structural changes in the global economy, particularly within the dollar and the international monetary system. Garten's meticulous storytelling captures this well as he unravels the mounting challenges of escalating balance of payment deficits, soaring inflation, and the spectre of stagflation, which had the potential of turning out to be the Nixon Administration's own 'Vietnam.'

Discussions at Camp David

Gartner details the intense discussions held at Camp David between President Nixon and a select group of officials, including Treasury Secretary John B. Connally Jr., Secretary of Labor George P. Shultz, and Chairman of the Federal Reserve Board Arthur F. Burns. After the Camp David meeting, In his televised address to the nation on August 15, 1971, President Nixon introduced a comprehensive set of measures as part of his "New Economic Policy”. These initiatives aimed to address a range of economic challenges facing the America. Among the key components were efforts to stimulate investment and spur economic growth through tax incentives, along with measures to reduce government spending and tackle inflationary pressures. Additionally, Nixon introduced policies to manage international trade and monetary issues, reflecting the interconnected nature of the global economy. The New Economic Policy represented a multifaceted approach to economic management, with a combination of fiscal, monetary, and trade policies aimed at stabilizing the economy and fostering long-term prosperity.

The book’s narrative continues with the repercussions of President Nixon's actions, prompting U.S. allies to the negotiating table. The author sheds light on the Nixon-Pompidou Summit at Azores, resulting in an 8.7% devaluation of the dollar against gold and currency revaluations by other nations. Subsequently, the author delves into the details of the Smithsonian Agreement, which outlined currency realignment, a new fluctuation limit of 2.25%, and the suspension of dollar-to-gold conversions, among other measures.

Navigating Economic Turmoil

The book proceeds to explore how, subsequent to the Smithsonian Agreement – which happened just after Camp David meeting – the United States experienced capital outflows to nations with higher interest rates, resulting in the dollar depreciating below the agreed level. This situation raised doubts among foreign governments regarding the U.S.'s adherence to its commitments. Gartner seeks to explain the ramifications of the 1973 OPEC oil price surge, which precipitated worldwide economic disruptions, including inflation, recession, increased borrowing, and exacerbated agricultural shortages due to soaring prices. Gartner also discusses the "Jamaica Accords," which succeeded the Smithsonian Agreement, endorsing a floating exchange rate system under the IMF Articles of Agreement.

A set of transformative meetings, starting with the three days meeting in August 1971 at Camp David, paved the way for the Smithsonian Agreement, culminating in the Jamaica Accords and a new era of currencies floating with minimal regulations. "Three Days at Camp David- How a Secret Meeting in 1971 Transformed the Global Economy" offers engaging insights for those intrigued by the history of exchange rate systems and the workings of the global economy.