Monday, January 30, 2012


A term found in the archives:

A side-note: FOA, Foreign Operations Administration (after June 30, 1955, International Cooperaton Administraton (ICA))


A term found in wiki:
"The Iran–Iraq War (also known as the First Persian Gulf War and by various other names) was an armed conflict between the armed forces of Iraq and Iran, lasting from September 1980 to August 1988, making it the longest conventional war of the 20th century. It was initially referred to in English as the "Persian Gulf War" prior to the "Gulf War" of 1990." ~Wiki


Gold quality swap
"Gold quality swap exchange of gold of one delivery standard (purity) for gold of another delivery standard with a commitment to reverse the exchange at some specified future date."

"Under a gold location swap, gold stored in a particular physical location is swapped with a
market counterparty for a specified period with gold stored in another physical location.
Under a gold quality swap, gold of a particular quality (“fineness”) is swapped with a market
counterparty for a specified period with gold of a different fineness. In each case a fee is
built into the transaction."

c)Exchange Equalisation
Account: Accounts 1998-99

Investments need to be highly liquid so they can be made available quickly for
intervention purposes if necessary and carry minimal credit risk. Essentially this means that the
bulk of the assets are securities issued by the national governments of the United States, France,
Germany and Japan and currency deposits with highly rated banks. During 1998-99 the EEA
also made use of other financial instruments including:
• bonds issued by supra-national organisations and selected official sector agencies,
• foreign currency spot, forward and swap transactions,
• interest rate and currency swaps,
• bond and interest rate futures,
• sale and repurchase agreements,
• forward rate agreements,
• gold deposits, gold loco and gold quality swaps,
• special drawing rights (SDRs),

Gold quality swap exchange of gold of one delivery standard (purity) for gold of another delivery
standard with a commitment to reverse the exchange at some specified future date.

[Mrt -> Also note dates of those papers:]

Wednesday, January 25, 2012

IIE - The External Policy of the Euro Area: Organizing for Foreign Exchange Intervention

Working Paper S e r WP 06-4 JUNE 2006
The External Policy of the Euro Area: Organizing for Foreign Exchange Intervention


HSG - 99. Memorandum From the Executive Secretary of the Economic Policy Board (Porter) to President Ford

Foreign Relations of the United States, 1973–1976
Volume XXXI, Foreign Economic Policy, Document 99

99. Memorandum From the Executive Secretary of the Economic Policy Board (Porter) to President Ford

  • Economic Policy Board Executive Committee Vote on U.S. Negotiating Position on Gold
As Executive Secretary of the Economic Policy Board, I was designated by Secretary Simon and Mr. Seidman to conduct the secret ballot you requested at this morning's Economic and Energy Meeting2 on the issue of the U.S. negotiating position on gold.
The closest refinement of the issue is as follows:
Treasury Position:Central banks should not be free to sell gold to one another for the settlement of regular or normal transactions.
Federal Reserve Board Position:Central banks should not be free to sell gold to one another for the settlement of regular or normal transactions and central bank transactions in gold must be restricted to emergency circumstances.
The votes of the Executive Committee members are as follows:

Treasury Position Supported by Simon, Dunlop, Morton, Kissinger, Seidman3

Federal Reserve Board Position Supported by Burns

Abstentions: Lynn, Greenspan
The Department of State vote was cast by Deputy Secretary Ingersoll who spoke with Secretary Kissinger following the meeting.
1 Source: Ford Library, President's Handwriting File, Subject File, Box 19, Finance—Gold. No classification marking. Attached to an August 29 covering memorandum from Connor to President Ford that reads: "Roger Porter sent this in per your request."
2 The meeting took place in the Cabinet Room from 11:15 a.m. to 12:15 p.m. In attendance were President Ford, Simon, Seidman, Dunlop, Lynn, Butz, Ingersoll, Domestic Council Executive Director and President's Assistant for Domestic Affairs James Cannon III, Morton, Enders, Yeo, Domestic Council Deputy Director Richard Dunham, Greenspan, Counselor John Marsh, Jr., Federal Energy Administration Administrator Frank Zarb, Counselor Robert Hartmann, Cheney, Rumsfeld, President's Assistant for Legislative Affairs Max Friedersdorf, Press Secretary Ronald Nessen, Assistant Press Secretary John Carlson, and Porter. (Ibid., President's Daily Diary) No other record of the meeting has been found.


Tuesday, January 24, 2012

HSG - 60. Paper Prepared in the Department of the Treasury

60. Paper Prepared in the Department of the Treasury1

Washington, March 5, 1974.

Possible U.S. Proposal on Gold

"An important objective of such a sale by the U.S. would be to establish U.S. credibility, and to enhance U.S. bargaining in discussion of the U.S. proposals to be made later, by bringing to the other governments a realization that the U.S. might well be willing to sell large amounts of gold into the market. It would be important to handle the proposal for prompt sales in such a way as not to trigger immediate European implementation of inter-central-bank gold transfers at a market-related price or to trigger offsetting gold purchases by the French or others. It would also be desirable to handle the sale in such a way as not to trigger immediate Congressional action forcing permission for private ownership in the U.S. For this reason presumably the prompt sales would be handled like exchange market intervention and not be immediately announced publicly.

Secondly, at the next small ministerial meeting the U.S. could propose a package agreement which would attempt to trade a U.S. commitment to limit severely possible U.S. gold sales over the next few years in exchange for European commitments not to take what we regard as a backward step toward placing gold back in the center of the international monetary system and to join with us in some steps toward phasing gold out of the system. Specicifically we might propose:

1. that each of the governments undertake not to sell in either of the next two years more than $500 million in market value of gold apart from the amount, if any, necessary to offset any increase in holdings by its citizens as a result of relaxation of restrictions on private ownership. (Such an undertaking would represent the "bait" being offered by the U.S. and would represent percentagewise a much more serious restraint on the U.S. than on others. This feature is proposed in the belief that a less stringent restraint on the U.S. would not offer much hope of gaining acceptance of the other parts of the package. The proposed limitation on sales would represent the following percentages of present gold holdings:
(at $100/oz.) (at $150/oz.)
% %
U.S. 1.8 1.3
Germany 4.2 3.1
France 5.0 3.8
Italy 6.1 4.5
UK 23.5 17.7
Japan 23.7 17.9)

2. that each of the governments undertake not to acquire gold either from the market or from other governments during the next two years,

3. that the governments agree to attempt to persuade the C–20 at its ministerial meeting in June2 to adopt principles for use in subsequent redrafting of the IMF articles to provide

a. there would be no link between the SDR and gold,
b. there would be no mandatory gold component in future subscriptions to the Fund,
c. there would be no gold link in obligations to or rights to draw upon the General Account, and
d. in calculating the value of the liquid assets held by the Fund or by any member, the Fund would value gold at its market price.

Thirdly, we could inform the others of our expectation that in the near future we will permit private U.S. ownership of gold and will sell from U.S. stocks at least enough gold to prevent the added U.S. private demand from creating disorderly market conditions. At the same time we could announce an intention to recommend to the Congress that the par value of the dollar in terms of gold be eliminated."


Bennett, Jack F.
Bryant, Ralph
Burns, Arthur
Ford, Gerald R.
Volcker, Paul A.


HSG - 54. Foreign Relations of the United States, 1973–1976 Volume XXXI, Foreign Economic Policy, Document 54

Foreign Relations of the United States, 1973–1976
Volume XXXI, Foreign Economic Policy, Document 54

54. Memorandum From Secretary of the Treasury Shultz to President Nixon

Gold Sales

HSG - 168. Memorandum From the President's Assistant for International Economic Affairs (Flanigan) and the President's Assistant for National Security Affairs (Kissinger) to President Nixon

Foreign Relations of the United States, 1969–1976
Volume XXIV, Middle East Region and Arabian Peninsula, 1969–1972; Jordan, September 1970, Document 168

  • State Department Draft Letter from the President to King Faisal re Saudi
  • Proposal for a Special Relationship in Oil
"Saudi Arabian Oil Minister Yamani recently proposed, in conversation with Deputy Secretary Irwin and later in a public speech,2 a special relationship between Saudi Arabia and the U.S. for the future supply of Saudi Arabian oil, coupled with sharply increased Saudi investments in the U.S. to offset the balance of payments drain..."


HSG - 164. Memorandum of Conversation

Foreign Relations of the United States, 1969–1976
Volume XXIV, Middle East Region and Arabian Peninsula, 1969–1972; Jordan, September 1970, Document 164

164. Memorandum of Conversation1

  • Participation and Saudi–U.S. Oil Relations
  • His Excellency Ahmad Zaki Yamani, Minister of Petroleum and Mineral Resources of Saudi Arabia
  • His Excellency Ibrahim al-Sowayel, Saudi Arabian Ambassador to the U.S.
  • Honorable John N. Irwin, Acting Secretary
  • Honorable Rodger P. Davies, Acting Assistant Secretary for NEA
  • Mr. James Akins, Director, Office of Fuels and Energy
  • Mr. Nicholas Veliotes, Special Assistant, U
  • Mr. Francois M. Dickman, Director, NEA/ARP
Summary: Yamani saw few obstacles remaining before reaching final agreement with the oil companies on participation. He did not believe other oil producing countries could disrupt this agreement if he could show that it is fair and advantageous. Once participation is achieved, Saudi Arabia wants to invest in downstream oil operations. Otherwise, it will soon no longer be in Saudi Arabia's economic interest to increase oil exports and accumulate surplus cash reserves in depreciating currencies. He hoped the U.S. would give Saudi oil special treatment. If an early start is made, the end result would be to have a huge Saudi investment in downstream facilities in the U.S. with an obligation by the Saudis to move their oil to these facilities in future years. Not only would this assure future energy supplies to the U.S. but would also benefit the U.S. balance of payments. End Summary

"...The Minister observed that given the present growth in Saudi oil production, the Kingdom's oil revenues will soon exceed its spending capacity. There will no longer be any need to accumulate any more surplus foreign exchange to deposit in foreign banks since the appreciation of oil left under ground will be greater than the return on foreign exchange assets. This problem could be avoided if national oil companies of producer nations can go downstream. Otherwise, if no outlets for this surplus cash are available, pressures to implement a production control program would be inevitable and this would have a serious and adverse effect on the consumer..."


Monday, January 23, 2012

BIS - AG - The euro as an international currency

Remarks by Mr Alan Greenspan, Chairman of the Board of Governors of the US Federal Reserve
System, before the Euro 50 Group Roundtable, Washington, 30 November 2001.

"...In today’s world of government-issued monies, the unit of currency is not, and need not be, defined. It circulates as legal tender under government fiat. Its value can be inferred only from the values of the present and future goods and services it can command.
In the international arena, however, no overarching sovereign exists to decree what is money. Instead, a myriad of private agents must somehow reach agreement on which currency to use as an international currency..."

"...We are left with the question of how the international role of the euro will unfold. The attraction of investing in dollar-denominated assets depends upon relative rates of return. To the extent that the capital flows we have observed from Europe to the United States are a critical piece of the story, the future will be determined, at least in part, by the success in Europe of matching the expected rates of return on U.S. assets. But market pressures toward portfolio diversification are clearly also going to play a major role in the future relative positions of the dollar and the euro. The world can only benefit from the competition."

[Mrt: let the games begin! ]


BIS - AF - The relationships between currencies and gold

Antonio Fazio: The relationships between currencies and gold

Speech by Mr. Antonio Fazio, Governor of the Bank of Italy, at the World Gold Council International
Conference “The Euro, the Dollar and Gold”, held in Rome on 17 November 2000.

If a gold standard had never existed, it might be necessary to invent something of the kind”. This quotation from a monograph by Dennis Robertson (Money, 1928, p 122) refers to one of the positive aspects of the gold standard: that of shielding central bankers from pressures to increase the money supply. After the First World War the return to gold was in fact the overriding objective of economic policymakers, in order to ensure monetary stability.
The economic disequilibria produced by the war were so pronounced, however, that they made it hard to re-establish the gold standard. The cost, in terms of welfare, imposed by inflation, rising public debt and war reparations was so high that it prevented the rapid return to gold.
The Genoa conference of April 1922 laid the foundations for an important innovation: the creation of the gold exchange standard, under which gold was flanked by convertible currencies and central banks were granted greater autonomy; this was to be used to stabilize the value of gold, through international cooperation. However, the new system did not enjoy the same credibility as the earlier regime and, at the same time, failed to leave the monetary authorities sufficient room for manoeuvre. Culturally still under the influence of the gold standard, the monetary authorities were in any case little inclined to cooperate and tended to accumulate gold reserves, thereby exerting powerful deflationary pressure on the economy.
The monetary disorder of the thirties created the need for a new reform, which was implemented after the Second World War with the Bretton Woods agreements.
The suspension of the dollar’s convertibility on 15 August 1971 officially cut the link between legal tender and gold - an epochal change after more than 2,500 years during which money had always been based explicitly or implicitly on a precious metal, prevalently gold.
The abandonment of a monetary system hinging directly or indirectly on gold was a consequence of the severe economic disequilibria that developed between the two world wars. The advances made in monetary theory also exerted a powerful influence.
Ricardo provides us with a clear indication of the main objective of the gold standard: “To secure the public against any other variations in the value of currency than those to which the standard itself is subject, and, at the same time, to carry on the circulation with a medium the least expensive…”. He also noted that: “Experience, however, shews, that neither a State nor a Bank ever had the unrestricted power of issuing paper money, without abusing that power: in all States, therefore, the issue of paper money ought to be under some check and controul; and none seems so proper for that purpose, as that of subjecting the issuers of paper money to the obligation of paying their notes, either in gold coin or bullion.” The same concepts are to be found some hundred years later in Irving Fisher..."
"...In practice the system turned into a fixed-rate dollar standard. The importance attributed to domestic targets in the economic policy of the United States undermined the coherence and operation of the system, thereby preparing the ground for the abandonment of the link with gold and the move to floating exchange rates...."
"...The process up to now has followed a virtuous course, without excessive inflationary pressures thanks to heightened competition and productivity gains in the United States. Its Achilles’ heel is the rise in the prices of raw materials and energy products...."
[Mrt: The conclusion in the document]


BIS - D - Mr. Duisenberg reports on the outcome of the second meeting of the Governing Council of the European Central Bank

17 Jul 1998

"...(b) Foreign exchange issues

The Governing Council decided on the size and form of the initial transfer of foreign reserve assets to the European Central Bank from the national central banks participating in the euro area. This transfer is to take place on the first day of 1999. It has been decided that the initial transfer will be to the maximum allowed amount of EUR 50 billion, adjusted downwards by deducting the shares in the ECB’s capital subscription key of the EU central banks which will not participate in the euro area at the outset. The transfer will thus be equal to 78.9153% of EUR 50 billion, i.e. approximately EUR 39.46 billion.

The Governing Council furthermore agreed that this initial transfer should be in gold in an amount equivalent to 15% of the sum I have just mentioned, with the remaining 85% being transferred in foreign currency assets. I should stress that the decision on the percentage of gold to be transferred to the ECB will have no implications for the consolidated gold holdings of the ESCB.

The precise modalities of the initial transfer will be finalised before the end of the year.

Before the end of the current year the Governing Council will also have to adopt an ECB Guideline pursuant to Article 31.3 of the Statute of the ESCB, which will subject all operations in foreign reserve assets remaining with the national central banks - including gold - to approval by the ECB..."


AL - The role of Monetary Gold over the next ten years

Alexandre Lamfalussy

[Mrt: this is an addition for the list of USG docs]


Saturday, January 21, 2012

W. F. DUISENBERG in short, a connection?

Chairman of the Board and President of the Bank for International Settlements - ending -> June 1997
Member of the Governing Councilof the Bank for International Settlments - ending -> June 1997
Member of the Governing Council of the European Monetary Institute  - ending -> June 1997
Governor of the International Monetary Fund  - ending -> June 1997

Another starts to post Oct 5 1997.

[Mrt: this could be just an interesting coincidence but NDA (Non Disclosure Agreements) could play a role]

Also very important is the post in EABH this is the link to R*.

[Mrt: There is no proof that He is the Another but the posting on the USAGold could be somehow connected.]

More about WFD:


*** US Gov documents and meetings ***

US Gov documents and meetings

Prelude: here

1/ US Gov docs:
[Mrt: Now posts are in timeline, I will be adding here new based on how I go through them, description with highlighted parts for the Freegold case in posts bellow]

More search possible: here
Additional sources: here
Monetary papers: here

2/ Another source:

Foreign Relations, 1969-1976
Foreign Economic Policy 1969-1972; International Monetary Policy, 1969-1972
Link: Volume III.

Scarting old gov docs:
Adding 2 links: here and here

To get the whole picture see my other blog:

Beginning - The One Note - Foreign Relations of the United States, 1964–1968 Volume VIII, International Monetary and Trade Policy, Document 159

Foreign Relations of the United States, 1964–1968
Volume VIII, International Monetary and Trade Policy, Document 159

159. Circular Telegram From the Department of State to All Posts1

85849. Following statement issued December 16 by Secretary Fowler of the Treasury and William McChesney Martin, Chairman of Federal Reserve Board. “The United States stands firm in its determination to maintain the gold value of the dollar. The central banks of Belgium, Germany, Italy, the Netherlands, Switzerland, and the United Kingdom support this position and continue to participate fully with the United States in policies and practices in support of the price of gold at $35 an ounce. The operation of the London gold market will continue unchanged. The United States authorities and the European central banks concerned endorse this position unanimously and are cooperating in the interest of maintaining the stability of the international monetary system.

1 Source: Department of State, Central Files, FN 10. Unclassified. Drafted by F. Lisle Widman (Treasury) on December 16 and approved by Lawrence J. Kennon (E/OMA). The statement in the telegram is identical to a draft statement that had been worked on with the Europeans. This draft is attached to a memorandum from Rostow to the President, December 15, 9:20 p.m., in which Rostow noted that the Europeans were to give their final approval on the morning of December 16 and, if all went well, the statement would


Friday, January 20, 2012

FED - One Note - 62. Paper Prepared in the Federal Reserve Board

Foreign Relations of the United States, 1973–1976
Volume XXXI, Foreign Economic Policy, Document 62

62. Paper Prepared in the Federal Reserve Board1

Gold: A Possible U.S. Proposal
A. Objectives
1. To meet actual or prospective needs of countries to mobilize their gold reserves for the purpose of financing balance-of-payments deficits.
2. To head off alternative "gold mobilization" actions (e.g., unilateral action by the EEC) that would reverse the evolutionary process by which gold's importance as a monetary reserve asset has gradually been reduced.
3. To clarify the U.S. position on the role of gold as a monetary reserve asset in the long run.
4. To lay the foundation for a longer-run, cooperative solution to the gold question.
B. Basic Features of Proposal
1. Cooperative arrangements among major governments for sales of official gold to the private market. A marketing agent—preferably the IMF—would make the sales out of stocks committed by participating countries to a central pool. (See Annex for description.)2
2. Agreement among participating governments not to purchase gold from the market.
3. Agreement among participating governments not to buy or sell gold with any other government.
4. Establishment by the participating governments of a "gold-swap" facility to provide credits (against gold collateral) to a participating country in balance-of-payments difficulty. Such a facility would obviate any balance-of-payments need for the transactions ruled out by B(3). (see Annex for description.)
5. Alteration of certain obligations and provisions regarding gold in the IMF: e.g., elimination of mandatory gold component in future subscriptions to the IMF; elimination of gold provisions in transactions with the General Account; expression of par values and related obligations only in SDRs (not in gold).
C. Possible Tactics
1. U.S. officials would indicate privately to the "group of Five" countries3 that we were prepared to propose an understanding on gold at the next meeting of the group, for consideration as part of a C–20 package agreement this summer or as an independent step.
2. In the interim, the United States might sell a significant but still modest amount of gold in the private market, probably in London. Preferably, this action would be taken in conjunction with market sales by one or two other countries (e.g., Germany). The proximate objectives of these sales could be to exert some downward pressure on the market price (recently in the high range of $160–180), to have a favorable effect in mitigating speculative and inflationary psychology, or to make more credible (to the market and to other governments) the prospect of periodic official sales in the market.
D. Possible Associated Actions by the United States
1. The market sales in C(2) would intensify the pressure to eliminate the restrictions that prevent U.S. citizens from buying, selling, and holding gold. At some point, but probably not before agreement were reached on the proposal in B, these restrictions could be terminated.
2. If the proposal in B were agreed, and if there were concurrence from the other governments participating, the U.S. Treasury might from time to time sell gold to U.S. residents directly. Such sales would need to be coordinated with the sales policy of the marketing agent.
3. At some point, probably in conjunction with presentation to Congress of the C–20 package agreement, the Administration could recommend that the par value of the dollar be expressed only in terms of SDRs, even if B(5) were not agreed.
1 Source: National Archives, RG 56, Office of the Under Secretary of the Treasury, Files of Under Secretary Volcker, 1969–1974, Accession 56–79–15, Box 2, OECD. Strictly Confidential (FR). Attached is an April 24 note from Bryant to Volcker that reads: "This is the note on gold to which I referred in our conversation in Tokyo. If something has to be done on the subject, then the attached method of "mobilization" may be less unpalatable than most, or all, alternatives."
2 Attached but not printed.
3 The Federal Republic of Germany, France, Japan, the United Kingdom, and the United States.


HW - One Memo - Foreign Relations of the United States, 1973–1976 Volume XXXI, Foreign Economic Policy, Document 84

84. Memorandum From Henry Wallich, Member of the Federal Reserve System Board of Governors, to the Chairman of the Federal Reserve System Board of Governors (Burns)1

  • Gold
From conversations I have had with Jack Bennett, it is my impression that Treasury wants to shift somewhat their position on inter-central bank gold transactions. Bennett now seems prepared to start his negotiation in Paris with the position that central banks should not deal with each other in conformity with our position. However, he argues strongly that this position is not saleable. I interpret this to mean that if you insist on this position, Bennett would not retreat from it and would have to accept failure of the negotiation. This should be clarified to make sure my understanding is correct.
As a possible basis for getting an agreement, I raised with Bennett, without committing you, the following two-pronged alternative:
1. Distinguish between inter-central bank gold sales that reflect an emergency situation for the selling country, such as a sharp drop in reserves or a large prospective deficit, and the use of gold in routine transactions such as intra-snake settlements. The former would be permitted, the second ruled out.
2. To balance off this softened position, the ceiling on the world's official gold stock would be lowered over time, along the lines suggested in our luncheon conversation with Witteveen.2 No country would be required to sell gold as the ceiling moved down, but repur-chases of gold previously sold to the market and perhaps also intra-central bank "emergency" sales, would be progressively limited by this descending ceiling.
The descending ceiling might strengthen our position in negotiations with the French. It would be a hint that the U.S. might continue to sell gold. A decline in the price of gold is of course what the French most fear, with regard to their official holdings as well as their large private holdings.
Some further flexibility could be injected into the U.S. bargaining position by being more accommodating on the treatment of the gold held by the IMF. Our main objective would be not to keep this gold completely frozen in the IMF but to use it or dispose of it in some way. My preference would be to let the IMF use it for the benefit of the LDC's, by some such method as the trust fund proposed by the U.S., which is to be partly financed by profits on IMF gold sales. The French want restitution of the Fund's gold to the original contributors at the official price. While an inferior method, this would nevertheless serve to dispose of the fund's gold and get the problem out of the way. The fund's resources can always be increased, if necessary, by quota increases.


HSG - 189 - Foreign Relations of the United States, 1964–1968 Volume VIII, International Monetary and Trade Policy, Document 189

189. Memorandum From the President's Special Assistant (Rostow) to President Johnson1

  • Gold
Your senior advisers are agreed:
(1) We can't go on as is, hoping that something will turn up.
(2) We need a meeting of the gold pool countries this weekend in Washington.
(3) We want to negotiate the following package:
—Interim rules on gold.
—Measures to keep order in the financial markets.
—Acceleration of the SDR's.
(4) With the right kind of interim package, we could maintain our gold commitment to official holders.
(5) If we can't get this package, we would have to suspend gold convertibility for official dollar holders, at least temporarily, and call for an immediate emergency conference.
(6) This probably would mean a period of chaos in world financial markets, but it may be the only way to push the others into a sensible long-run arrangement which avoids a rise in the official price of gold. We are unanimously agreed that a rise in the price of gold is the worst outcome.
The decision you must make now is whether the London gold market should be closed at once.2
(a) Arguments for closing:
—Avoid losing perhaps $1 billion in gold tomorrow (we lost $372 million today).
—Such a gold loss would further shake the confidence of central banks and trigger their coming to us for gold.
—Makes it easier to arrange an emergency meeting of the gold pool countries this weekend.
—Evidence of U.S. decisiveness.
(b) Arguments against closing:
—Involves U.S. taking the lead in throwing in the towel.
—Closing the market will strengthen the hand of those who believe the official price of gold will be increased.
—May reduce the U.S. bargaining position with the Europeans.
—Gives us another fling at the Gold Certificate proposal.
1 Source: Johnson Library, White House Central Files, Confidential File, FI 9, Monetary Systems. Secret; Sensitive.
2 President Johnson agreed to the temporary closing of the London gold market on March 14. A statement by Secretary Fowler and Chairman Martin on the closing, March 14, affirmed the U.S. Government's commitment to continue to buy and sell gold in official transactions at $35 per ounce and indicated that they had “invited the central bank governors to consult with us on coordinated measures to ensure orderly conditions in the exchange markets and to support the present pattern of exchange rates based on the fixed price of $35 per ounce of gold.” For text, see Annual Report of the Secretary of the Treasury … , 1968, p. 370.


KR - One memo - Foreign Relations of the United States, 1973–1976 Volume XXXI, Foreign Economic Policy, Document 68

68. Memorandum From the President's Counselor for Economic Policy (Rush) to President Nixon

8. Memorandum From the President's Counselor for Economic Policy (Rush) to President Nixon1

  • U.S. Position on Gold
Attached is a brief memo by means of which Secretary Simon has attempted to obtain a unified U.S. position on gold.
Secretary Kissinger, Chairman Burns, and I agree with Secretary Simon's proposals and recommend that you authorize him to put them forward. Because of a conflict of interest, Mr. Ash has disqualified himself from participation in matters involving policy toward gold.
The proposals would contribute to the fight against inflation in the U.S. They would be popular with Congress and the American people. The Congress will probably legislate permission for private ownership of gold within a matter of weeks in any event if we don't propose it.
President Giscard and Chancellor Schmidt have indicated to Secretary Shultz that the Europeans will probably do something on their own very soon if a deal cannot be made with us. Secretary Shultz gave them reason to hope that we would come forth with a constructive response to the European proposals and the current extreme European concern about the economic and political situation in Italy. Secretary Kissinger, Secretary Simon and I are strategizing on how to get the maximum proposals in dealing with the new French and German governments.
Mr. Stein disagrees with two aspects of the proposals as indicated in his attached memorandum.2 But, Secretary Kissinger, Secretary Simon and I think the package needs to be taken as a whole for negotiating success.
The urgency arises because Secretary Simon is beginning meetings with the major financial leaders starting late today and this subject will be foremost in their minds.

 [Mrt: check out ther attached part]
AttachmentMemorandum Prepared in the Department of the Treasury



WES - One Memo - Foreign Relations of the United States, 1973–1976 Volume XXXI, Foreign Economic Policy, Document 98

98. Memorandum From Secretary of the Treasury Simon to President Ford1

Need for Your Advice on Next Week's Monetary Negotiations
I would like very much to meet with you this week to discuss our negotiating positions for the important negotiations next week in which I will be participating. In particular I need your advice on a matter on which Arthur and I are still unable to agree: the gold question which we reviewed with you on June 32 and on which, despite subsequent efforts, we have not been able to reach agreement.3
Because of the gold issue we're in a difficult tactical position. We, along with the French, have held out for a package agreement on the three principal points. The French position has changed. They now indicate a willingness to "unbundle" the issue of gold and quota increases leaving the exchange rate issue for later. There is some question whether this represents a serious position—they are probably aware of our disagreement with the Fed on gold and thus our inability to negotiate. They also probably realize the difficulty in gaining Congressional approval of quota increases in the absence of agreement on the exchange rate issue.
In any case their initiative appears to the world to be positive and forthcoming. They appear to have dropped the trappings of intransigence and have assumed a position of flexibility. Unless Arthur and I can determine a mutually acceptable position on gold, we cannot negotiate on this issue. If they refuse to deal on the matter of exchange rates, we in turn cannot afford to agree on the highly popular issue of quota increases without losing one of our best cards and incurring the enmity of some of our key Congressional supporters on the exchange rate issue.4
Failure next week as a result of our internal difficulties would increase the political pressures for an Economic Summit with a monetary agenda. A Summit with this agenda, originating seemingly as a result of the failure of the "technicians" of the Interim Committee, could be from an economic and political standpoint a high risk, low reward scenario for the U.S.
The solution, it seems to me, is to agree with Arthur on a gold position that provides us with a negotiating basis, one from which we can deal on gold and offer to deal on quotas if after some U.S. concessions the exchange rate issue can also be settled. If the exchange rate issue cannot be settled, we can still indicate a willingness to settle on gold leaving quotas and exchange rates for later. I am sorry to bother you again on this matter but I urgently need your advice.
As background the three principal issues on the IMF Interim Committee's agenda are, an increase in IMF quotas, the exchange rate issue and the gold issue. Those three issues are the final distillation of the Committee's overall charge to develop steps to update the international financial system and to develop some practical measures of financial assistance for LDCs.
1. IMF quota increase—Agreement on an increase of one-third in IMF quotas is close. The quota increase will result in a substantial expansion in the amount which governments can borrow from the IMF in cases of need and entails an increase in the obligations of governments to lend to the IMF when other governments are deserving of assistance. Our present offer is to recommend to Congress that our share in the quota increase be limited to less than one-third. This would drop our overall quota share from 22.9% to 21.9%, and would permit the OPEC countries' quotas to double from 5% to 10%. Under certain circumstances we are prepared to reduce our overall quotas even further so long as this is accompanied by a change in IMF rules defining the size of the majority required for key actions—from the present 80%–85%—to sustain our veto.
2. Exchange rates—This is perhaps the most implacable issue on which we are negotiating. It is directly related to bread and butter concerns, principally the relative competitiveness of nations' goods in international markets and their respective home markets and to the international role of the dollar and the advantages that the French are convinced go with its present role. The French position is that the floats that in varying degrees characterize the world's principal currencies are aberrations and that phased return to the par values called for under the IMF articles is essential. Presently all major countries are in violation of the basic undertakings in the IMF articles with respect to exchange practices. The French have been insistent that their ultimate objective—all must be part of a fixed exchange rate system—must be spelled out implicitly in any language adopted as a substitute for the obsolete article presently in place. I am considering offering to end the interminable debate surrounding the wording of a new article by simply eliminating the obsolete provisions and not replacing them at this time.
Whether this will provide a satisfactory resolution to this issue is problematical. For tactical reasons, discussed later, and for longer run reasons, agreement will be difficult. The fundamental problem involves the desire of the French to improve their relative competitive position by obtaining from their standpoint, a more attractive exchange rate for the franc—a move that requires a fixed exchange rate system within which to operate. The French sorely miss the advantage that the structurally undervalued franc provided in the period starting in 1958 and ending with the float of major currencies including the dollar.
They intellectualize their position by arguing—sometimes with effect, if not with accuracy, that a system of fixed exchange rates exerts discipline and is therefore not inflationary. Recently they have skillfully tapped the world's craving for stability in a dangerous and swiftly changing environment by making a political argument for the "stability" of a fixed exchange rate system. This argument is spurious. Such a system is fixed in name only and lacks the elasticity to adapt without a series of foreign exchange crises to the changes in fundamental economic relationships that are at the source of the disturbing changes that we have all observed. In effect what tends to be fixed is the dollar, i.e., others have much more say about the value of the dollar under the fixed than under floating rates. The French in particular adjusted their exchange rate frequently in the post-war period against a fixed dollar to maintain a highly competitive trading position.
3. Gold—The Interim Committee has agreed that the official international price for gold should be abolished and that the monetary role of gold should be phased down. It is also agreed that the substantial amount of gold held by the IMF should not be immobilized forever. On this point there is agreement that some IMF gold should be put to use and that some constraints or conditions should be applied to official gold sales and purchases in the near future.
The French have either agreed to or appear ready to agree to the following:
  • a. The German proposal that a part of the IMF's $7 billion in gold (at the official price of $42 per ounce; the market price is $161) be restituted to members according to their quotas with part being sold in the private market and the proceeds used to establish a trust fund to help selected LDCs. Disposition of the rest of the IMF's gold would await a later decision which would require an 85% majority.
  • b. A global limit on official gold holdings under which no government would buy gold when the effect would be to increase total governmental holdings. The reserves held in the form of gold by some countries could increase without a change in the overall amount held by governments (including the IMF).
  • c. In addition the French are willing to agree that no government should trade in gold with the objective of trying to peg the price.
  • d. The French agreed to re-enter the snake under amended rules which specifically prohibit the settlement of balances in gold. This involved some domestic political risk for the French government and is at variance with long established French theology on the subject.
While the French have agreed to the above, points a–d, they and others are more or less united in their opposition to a situation in which gold could under no circumstances be used (other than in exceptional circumstances), a limit that in response to Arthur's strong urgings we have sought to negotiate. Countries like Italy which have large gold holdings and which have recently encountered exceptional circumstances agree with the French. They and others feel that we have been unduly doctrinaire on this point.
Arthur feels that this is not the case. He fears that the known longing on the part of some European central bankers to reimpose a gold based system—a system in which the price of gold would be pegged to a currency or to a collection or basket of currencies—will be translated at some point into action. If this occurred, he feels that we would be at a relative disadvantage because this would involve a less elastic and responsive exchange rate system, a diminution in the role of the dollar, and an increase in the relative importance of powers such as France that have large reserves held largely in the form of gold. He also ascribes an inflationary effect if gold were pegged at the present level, roughly four times the official level, and central banks with large gold holdings were able to "write up their reserves." This in turn would lead to a large increase in stated reserves and Arthur and others believe a dangerous and inflationary rise in world liquidity.
I concede part of the last point that international liquidity as distinct from domestic liquidity has increased with the rise in the market price of gold. If the price of gold were pegged and reserves were written up accordingly, it would in large part be a recognition of the fact that gold currently is well above the official price of $42 per ounce. In substance, the increase in international liquidity which Arthur fears has happened. I'm not entirely convinced that this is bad since there has been a need for additional international liquidity. Our inflation problem has its origins in our inability to curb the growth of domestic liquidity and further lapses in this area will set the stage for more inflation—international liquidity control will play a small role.
I doubt the ability of central banks to peg the price of gold if fundamental forces are in the direction of lower prices. I fail to see why efforts to hold up the price of gold would be any more effective today than our efforts to hold down the price of gold at $35 per ounce was in the 1960s.
If market forces are tending to push up the price of gold, central banks could on a frequent basis reset their pegs at excessively higher levels, but they can de facto restate their reserves at market prices right now, as France has done, ignoring the official price of $42 or any new official price.
I believe there are two fundamental forces at work that have a bearing on gold. In our inflationary time governments will part with gold reluctantly. Until prices are stabilized, gold stocks will come down grudgingly in small increments because governments and central bankers are not immune to the store of value aspect of gold, they too like to "hold a little gold."
By the same token a gold based system, a system in which payment deficits are settled by sales of gold from one central bank to another central bank, is improbable because central banks will not wish to part with their gold preferring to settle in some other form—such as dollars or a basket of currencies.
If prices stabilize, the price of gold is likely to fall sharply—an event which I think governments and central banks would be unable to stop. This does not preclude a situation in which certain governments and central banks would not seek under the global limit and in the context of IMF sales to increase their holdings of gold. Such countries would have to accept the risk that gold purchased could depreciate sharply if gold in response to general price stabilization dropped in price. Moreover, the idea that an extraordinary hoard of gold will automatically result in an extraordinary amount of international power regardless of the relative size and efficiency of the hoarding country's economy seems far fetched.
Moreover, we are still holding the world's largest gold stock and this can be a decisive factor in the market for a long time if we wish it to be.5


HW - One Memo - Foreign Relations of the United States, 1973–1976 Volume XXXI, Foreign Economic Policy, Document 79

Foreign Relations of the United States, 1973–1976
Volume XXXI, Foreign Economic Policy, Document 79

79. Memorandum From Henry Wallich, Member of the Federal Reserve System Board of Governors, to the Chairman of the Federal Reserve System Board of Governors (Burns)1

  • Note Concerning Gold Discussions at Martinique
From the Reuters report of Bennett's statement, it appears that a major change of emphasis is planned in our gold policy.2 While we still ask for a transition period during which central banks cannot buy gold in the market or from each other at market-related prices in excess of previous sales, this transition period, which in the past seemed to be the principal rule of policy, now seems to become an exception, with the absence of such restraints after the transition being treated as the significant feature.
The principal objections to such a shift are:
(1) It should not be negotiated with the French alone, but with other interested countries, some of whose positions on gold have been influenced by our past positions.
(2) This policy is in conflict with our own action in selling gold. We are reducing our own holdings of a reserve asset while enabling other countries to make more effective use of theirs for monetary purposes.
(3) The danger of a new and higher official gold price becomes more concrete. It is true that such a price, in order to be made to stick, requires a willingness of one or more central banks to buy all the gold that is offered at that price. I doubt that there is such a central bank today. Thus, there seems no great immediate danger of a return to the Bretton Woods system or the gold standard. But it is probable that gold will have been moved closer to the center of the monetary stage.
(4) One useful purpose served by a policy of freeing the use of gold is that in times like these we may like to see countries have maximum reserves in order to maintain liberal trade policies. I am tempted to argue that the emergency is sufficiently serious to justify postponing our long-term objectives for the world's monetary system, which involve elimination of gold. But obviously there are means of supplying gold-holding countries with credit that would have the same favorable effect on their trade policies, if the credit terms are made easy enough.
From the briefing paper for the President3 it would appear that Treasury sees a basis for understanding with the French because the French have made what seems to me a semantic concession concerning the treatment of gold as a commodity. This surely is not a change of mind on their part concerning the basic importance of gold. Hence agreements based on this misleading appearance of a common ground are likely to prove disappointing.
(5) The memorandum to the President does not propose to trade our position on gold for the French position on oil. Apparently there would be no further benefits from making concessions to the French viewpoint on gold.4
1 Source: Ford Library, Arthur Burns Papers, Federal Reserve Board Subject Files, Box B52, Gold, Sept.–Dec. 1974. No classification marking.
2 Bennett's statement was not found. However, on December 11, the Los Angeles Times published a Reuters report on comments made by Simon on December 10 about the issue of gold at the U.S.-French meeting at Martinque. The report noted: "The United States is now saying that provided suitable arrangements can be made for a transitional period—from a position where gold still forms a large percentage of official reserves to a situation where it is regarded as a 'commodity'—then central banks should be free to buy and sell. But Simon said that the United States wanted to be sure that any transitional arrangements imposed limits which would not have the effect of placing gold more securely at the center of the financial system."
3 Document 78.
4 Solomon and Bryant also had objections. In a December 11 memorandum to Burns, Solomon asserted that to accept Bennett's proposal would be to concede "the position that the French took throughout the C–20 discussions" and "to promote the role of gold in the future monetary system." Solomon commented: "It seems a shame to decide this one aspect of reform now, especially when none of the other Europeans is pressing the issue. We certainly do not need to make this concession to the French to get them to agree to the U.S. recycling proposal, given France's balance of payments vulnerability." On December 12, Bryant wrote a memorandum to Burns in which he also warned that the "early relaxation" of the rules on official gold transactions could "increase rather than reduce the relative importance of gold in the monetary system." Bryant continued: "Even if one thought it desirable to push ahead on the gold question, would it be the best course to strike an understanding in bilateral conversations with the French? Does France have enough to give us, even in the area of energy policy, to make it worthwhile playing the gold chip bilaterally with them?" Both memoranda are in the Ford Library, Arthur Burns Papers, Federal Reserve Board Subject Files, Box B52, Gold, Sept.–Dec. 1974.