60. Paper Prepared in the Department of the Treasury1
Possible U.S. Proposal on Gold
The following possible actions by the U.S. Government seem to me to be worthy of consideration:
Firstly, next week we could inform the finance ministers of at least four, and possibly five, of the other major countries that we plan to lay a gold proposal on the table at the next meeting of the small ministerial group and that meanwhile we believe that some limited market sales of gold might be beneficial in counteracting the inflationary psychology now so widespread in the world. We could say that we would be willing to make such sales by ourselves but feel that the objective would better be achieved if some others joined us.
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:
[Page 219]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.
- 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 1, Gold—8/15/71–2/9/72. Confidential. A stamped notation on the paper reads: “Noted by Mr. Volcker.” There is no indication as to who prepared the paper. Attached to another copy, however, is an undated note from Bennett to Bryant that reads: “Any reaction? I plan to show this to the Secretary and Paul.” (Ford Library, Arthur Burns Papers, Federal Reserve Board Subject Files, Box B52, Gold, Mar.–Apr. 1974)↩
- The C–20 met at the Ministerial level in Washington June 12–13.↩