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.


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