EC COMMISSION VIEWS ON GOLD IN INTRA-EC SETTLEMENTS
1. SUMMARY. EC COMMISSION OFFICIALS HAVE TOLD US THE COMMISSION DOES NOT
INTEND TO MAKE ANY PROPOSALS TO THE EC COUNCIL CONCERNING THE PRICE OF
GOLD IN TRANSACTIONS BETWEEN EC CENTRAL BANKS, AND THAT IT DOES NOT
BELIEVE THE TIME IS RIPE TO MAKE ANY LIMITED OFFICIAL USE JUDGMENT ON THE CRITERIA FOR AN EVENTUAL INCREASE IN THE PRICE OF
MONETARY GOLD. AT THE SAME TIME, THE COMMISSION ADMITS THAT GOLD IS
BEING DISCUSSED IN THE MONETARY AND CENTRAL BANK GOVERNORS COMMITTEES.
WELL- PLACED COMMISSION SOURCES HAVE TOLD US, MOREOVER, THAT THERE IS
STRONG THOUGH MINORITY SUPPORT WITHIN THE COMMISSION FOR THE INCLUSION
OF GOLD IN INTRA-EC SETTLEMENTS AT A HIGHER PRICE. THIS WOULD CONSTITUTE
A POLITICAL GESTURE WHICH, AS EC COMMISSION VICE PRESIDENT HAFERKAMP
TOLD A PRESS CONFERENCE ON NOVEMBER 16, WOULD ENABLE THE COMMUNITY TO
ASSERT ITS OWN PERSONALI- TY. END SUMMARY...
2. THE EC COMMISSION'S DISINCLINATION TO TAKE ANY
INITIATIVE ON THE GOLD PRICE ISSUE ACTUALLY APPEARED
IN WRITING ON NOVEMBER 14 IN RESPONSE TO A EUROPEAN
PARLIAMENTARIAN'S QUESTION AS TO WHETHER OR NOT THE
COMMISSION WAS COMPETENT TO PROPOSE A NEW AND MORE
REALISTIC PRICE OF GOLD FOR INTRA-EC TRANSACTIONS. IN
REPLY, THE COMMISSION STATEMENT NOTED THAT THE POWER
OF DECISION IN FIXING THE PRICE OF GOLD WAS DETERMINED
BY ARTICLE IV, SECTION 7, OF THE IMF ARTICLES OF
AGREEMENT AS AMENDED ON JULY 29, 1969, THE AMENDED TEXT
STIPULATING THAT THE FUND CAN, BY AN ABSOLUTE MAJORITY
OF 85 PERCENT, CHANGE IN UNIFORM PROPORTION THE PARITY
OF THE CURRENCIES OF THE MEMBER STATES. THE COMMISSION
STATEMENT FURTHER NOTED THAT THE QUESTION OF GOLD WAS
CURRENTLY BEING DISCUSSED BY THE C-20 ON WHICH
SIX OF THE MEMBER STATES AND A COMMISSION OBSERVER WERE
REPRESENTED.
3. EC COMMISSION OFFICIALS HAVE CONFIRMED TO US THAT,
WHILE A HIGHER PRICE OF GOLD IS BEING DISCUSSED
WITHIN THE COMMISSION AS A WORKING HYPOTHESIS, THERE IS
NO INTENTION TO PRESS FOR A CHANGE IN PRICE IN
RESPECT TO INTRA-COMMUNITY TRANSACTIONS. THESE
OFFICIALS POINT OUT THAT THE COMMISSION'S PROPOSALS ON
RESERVE POOLING DO NOT REQUIRE A HIGHER GOLD PRICE
INASMUCH AS THEY PROVIDE THAT THE DISTRIBUTION OF ANY
INCREMENTAL VALUE ACCRUING TO THE EUROPEAN MONETARY
COOPERATION FUND AS THE RESULT OF AGREEMENT ON A NEW GOLD PRICE AT AN INTERNATIONAL LEVEL OR BETWEEN EC
CENTRAL BANKS WILL BE MADE IN UNITS OF ACCOUNT IN PRO-
PORTION TO EACH CENTRAL BANK'S GOLD CONTRIBUTIONS.
THUS, GOLD COULD BE PAID TO THE FUND AT THE CURRENT
OFFICIAL PRICE. THESE OFFICIALS FURTHER NOTE THAT IF
INTRA-EC GOLD TRANSACTIONS DID TAKE PLACE AT A HIGHER
PRICE, TECHNICAL PROBLEMS WOULD ARISE WITH RESPECT TO
THE UNIT OF ACCOUNT (WHICH IS DEFINED IN GRAMS OF
GOLD), THE COMMON AGRICULTURE POLICY, AND MEMBER STATE
CONTRIBUTIONS TO THE EC BUDGET, WHICH ARE STILL CALCU-
LATED IN PRE-SMITHSONIAN PARITIES. THE COMMISSION
HAS NOT YET TACKLED THESE TECHNICAL PROBLEMS.
4. SOME OF THE DISCUSSION WITHIN THE COMMISSION ON A
HIGHER GOLD PRICE WITHIN THE EC TURNS ON THE TECHNICAL
ARGUMENT OF WHETHER OR NOT THIS STEP WOULD FACILITATE
THE USE OF GOLD IN INTRA-COMMUNITY TRANSACTIONS.
SO FAR, GOLD HAS BEEN EFFECTIVELY NEUTRALIZED. AS A
RESULT OF THE IMF'S DECISION ON NOVEMBER 4 TO SUSPEND
FOR 120 DAYS THE EQUAL VALUE PRINCIPLE, COMMISSION
OFFICIALS NOW SAY IT WILL BE POSSIBLE FOR MEMBER STATES
TO TRANSFER AMONG THEMSELVES BOTH SDRS AND FUND
POSITIONS. THIS MEANS THAT GOLD-RELATED ASSETS MAY NOW
BE USED IN INTRA-EC SETTLEMENTS. WE UNDERSTAND, MORE-
OVER, THAT THE FRENCH INTEND TO PAY OFF A DEBT TO THE
BUNDESBANK IN SUCH ASSETS. ALTHOUGH THIS NEW SITUATION
WOULD SEEM TO REMOVE ONE ARGUMENT IN THE COMMUNITY FOR
A HIGHER GOLD PRICE, THE POINT IS MADE THAT TRANSACTIONS
IN GOLD AS SUCH (AS DISTINCT FROM GOLD-RELATED ASSETS)
ARE STILL EFFECTIVELY BLOCKED AND THAT A MEMBER STATE
MIGHT HAVE INSUFFICIENT GOLD-RELATED ASSETS TO COVER
ITS DEBTS IN ACCORDANCE WITH THE COMPOSITION OF ITS
RESERVES.
5. WHILE IT THUS APPEARS REASONABLY CLEAR THE COMMIS-
SION HAS NO INTENTION AT THIS TIME TO TAKE ANY INITIATIVE
ON GOLD, AND THAT THE COMMISSION WILL ABIDE BY ARTICLE IV,
SECTION 2 OF THE IMF ARTICLES OF AGREEMENT (PROHIBITING GOLD
PURCHASES ABOVE PAR VALUE), SEVERAL RELIABLE EC CONTACTS
TELL US THERE IS NONETHELESS VOCAL MINORITY SUPPORT
WITHIN THE COMMISSION FOR AN INITIATIVE IN THE MATTER.
THE BEST EVIDENCE OF THIS ATTITUDE IS IN EC COMMISSION
VICE PRESIDENT HAFERKAMP'S STATEMENT TO THE PRESS IN
BRUSSELS ON NOVEMBER 16 THAT, SINCE THE TWO-TIER
MARKET HAS BEEN AT LEAST PARTIALLY ABANDONED, THE
COMMUNITY COULD AGREE ON A HIGHER OFFICIAL GOLD PRICE FOR TRANSACTIONS BETWEEN THEIR CENTRAL BANKS. SUCH A
DECISION, ACCORDING TO HAFERKAMP, WOULD BE A MEANS FOR
THE COMMUNITY TO ASSERT ITS OWN PERSONALITY. WHILE
IN HIS VIEW SUCH A STEP WAS NOT NECESSARY FOR THE
COMMUNITY TO BEGIN POOLING RESERVES, INCLUDING GOLD,
HE SAID THE QUESTION WOULD HAVE TO BE EXAMINED.
6. SUBSEQUENT TO HAFERKAMP'S PRESS CONFERENCE, COM-
MISSION OFFICIALS APPEARED TO BACK AWAY SOMEWHAT FROM
HIS DECLARATION BY SAYING THAT HE SIMPLY WANTED TO
BRUSH ASIDE ANY OBJECTIONS TO THE COMMISSION'S PROPOSALS
ON RESERVE POOLING THAT WERE BASED ON THE NOTION THAT
TERMINATION OF THE TWO-TIER GOLD MARKET HAD CREATED A
NEW SITUATION. THUS, THE COMMISSION'S PROPOSAL ON POOLING
AND THE FUNCTIONING OF THE EC MONETARY COOPERATION FUND
WOULD REMAIN VALID WHATEVER THE PRICE OF GOLD.
7. COMMISSION OFFICIALS HAVE TOLD US THERE IS IN FACT
A BODY OF OPINION WITHIN THE COMMISSION THAT SEES THE
QUESTION OF A HIGHER GOLD PRICE FOR INTRA-EC TRANSACTIONS
AS ESSENTIALLY A POLITICAL PROBLEM. NOW THAT CENTRAL
BANKS ARE FREE TO SELL GOLD AT THE MARKET PRICE, THEY
MAINTAIN THERE IS NO REASON NOT TO FACILITATE ITS USE
WITHIN THE COMMUNITY BY ESTABLISHING A MORE REALISTIC
PRICE. BELIEVING THAT SUCH A STEP IS SIMPLY A MATTER
OF COMMON SENSE, THEY FAIL TO SEE WHY THE COMMUNITY
SHOULD REFRAIN FROM TAKING IT SIMPLY BECAUSE
IT MIGHT DISPLEASE THE U.S. ON THE CONTRARY, THEY
CONSIDER THAT IT WOULD BE AN EXCELLENT OPPORTUNITY FOR
THE COMMUNITY TO ASSERT ITS OWN "MONETARY PERSONALITY."
A FURTHER ARGUMENT THEY CITE IS THAT A HIGHER GOLD PRICE
WOULD COUNTER THE POINT ADVANCED BY SOME MEMBER STATES
THAT THERE CAN BE NO RESERVE POOLING PENDING RESOLUTION
OF THE GOLD PRICE ISSUE IN INTRA-EC TRANSACTIONS,
ALTHOUGH IT IS ADMITTED THAT THESE MEMBER STATES
WOULD THEN PROBABLY ADVANCE SOME OTHER ARGUMENT AGAINST
RESERVE POOLING.
8. THESE OFFICIALS FURTHER ARGUE THAT SUCH A MOVE
NEED NOT COMPLICATE INTERNATIONAL MONETARY REFORM
NEGOTIATIONS, WHICH IN ANY CASE ARE LIKELY
LIMITED OFFICIAL USE EVENTUALLY TO LEAD TO A MORE REALISTIC PRICE FOR GOLD
IN TRANSACTIONS BETWEEN CENTRAL BANKS. THEY NOTE THAT
EVEN THE U.S. AGREES THAT GOLD WILL CONTINUE TO PLAY
A ROLE IN A NEW INTERNATIONAL MONETARY SYSTEM. THE
OFFICIALS HOLDING THESE VIEWS, HOWEVER, GRANT THAT THEY
ARE UNLIKELY TO PREVAIL BECAUSE THE COMMUNITY WILL NOT
HAVE THE COURAGE TO ACT.
9. IN SUM, THERE ARE AT THIS TIME TWO DISTINCT
VIEWS IN THE COMMISSION. A MINORITY VIEW HOLDS THAT NOW
IS THE TIME FOR THE COMMUNITY TO ASSERT ITSELF BY
DECLARING A NEW AND HIGHER GOLD PRICE IN INTRA-COMMUNITY
TRANSACTIONS. ON THE OTHER HAND, A MAJORITY OF COMMISSION
OFFICIALS STILL APPEAR TO BELIEVE THAT THE ISSUE IS
BEST RESOLVED THROUGH THE C-20 TALKS ON INTER-
NATIONAL MONETARY REFORM. MANY OF THESE OFFICIALS,
HOWEVER, SAY THAT IT IS PROBABLY REALISTIC TO EXPECT THAT
CENTRAL BANK GOLD TRANSACTIONS WILL EVENTUALLY HAVE TO
TAKE PLACE AT A HIGHER PRICE. GREENWALD
Source: https://www.wikileaks.org/plusd/cables/1973ECBRU06770_b.html
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