Friday, January 20, 2012

One Memo - Foreign Relations of the United States, 1973–1976 Volume XXXI, Foreign Economic Policy, Document 85

85. Paper Prepared in the Department of the Treasury1

Proposed Understandings with Respect to Gold

Among the Governments Represented in the G–10

No participating government will take actions individually, or in concert with others, to attempt to peg the market price of gold at any particular level or to maintain it within any particular range or to use gold as a regular settlement medium.

Each government agrees that its trading in gold will be governed by the general understandings outlined below until such time as an agreement is reached among the governments concerned to modify or eliminate the understandings. An intensive review to consider possible changes in the understandings will be held within two years. The understandings are that:

a. No participating government will purchase gold from any source when the effect would be to increase the total gold holdings of IMF member governments and of the IMF above the level of their combined holdings on May 1, 1975;

b. No government will purchase gold directly from another government, or purchase gold from any source if such purchases would cause the gold held by the purchasing government to exceed its holdings on May 1, 1975, except that a government may, regardless of the level of its gold holdings, purchase gold from another government to facilitate a sale of gold by the latter government because of an emergency need to mobilize a portion of its gold holdings.

Among the Executive Directors of the IMF
a. During 1975 the IMF will be authorized to sell at the official price approximately SDR 100 million to a special account to be administered by the IMF for the purpose of lowering the effective interest rate paid by the most seriously affected developing countries on drawings in 1975 from the Oil Facility, provided the special account receives commitments for an appropriate volume of additional voluntary contributions from governments.

b. During the next several months the Executive Board will work in cooperation with the Secretariat of the Development Committee to prepare for consideration by the Development Committee and the Interim Committee not later than December 31, 1975, a detailed proposal for establishment of a trust fund to be administered by the IMF for making medium term concessional loans to the poorest member governments using in part funds received through voluntary contributions and in part funds acquired through gradual resale in the market of gold, sold to the Trust Fund by the IMF at the official price of gold.

1 Source: Ford Library, Arthur Burns Papers, Federal Reserve Board Subject Files, Box B52, Gold, Jan.–May 1975. No classification marking. Attached to a May 20 note from Truman to Burns that reads: "Attached is a statement on gold that Jack Bennett said that he had distributed for discussion at the G–10 Deputies' meeting last week in Paris. Mr. Bennett reported to the International Monetary Group that this statement represented 'his personal understanding of the position of the United States.'"



  1. 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.