In view of the sensitive nature of the proposal I hope that it will be
possible to limit distribution of the document within your group.
Attached are:2
Attachment
Draft Memorandum From Secretary of the Treasury
Simon to President
Nixon
SUBJECT
As you know, I shall be having discussions with the Finance Ministers
of Germany, France, Japan and the U.K. during the first week of
September in Europe. I recommend that you concur in my informing
them of two basic U.S. positions regarding gold, always assuming, of
course, that there are no serious adverse developments in the
international exchange markets in the meantime.3
- Firstly, I recommend that I be authorized to tell them that we
do not think it would be desirable either to request the repeal
of the legislation removing restrictions on private U.S.
investment in gold at year-end, or to wait to the last moment to
permit that private ownership. Under current conditions there
appear to be no advantages to delaying that private ownership
until year-end. Moreover, administration of the present
regulations would become increasingly difficult as the year-end
approaches, and earlier action could have a salutory, though
[Page 256]
small, impact in
reducing the budget deficit and inflation. I suggest that I
should also tell them that, when private ownership is permitted,
we plan to make sales of gold from the Treasury’s holdings in
amounts roughly comparable to the new investment demand in the
United States. Such sales would prevent the new private
investment demand from adding a balance of payments drain on top
of our already large cost of imports of gold for industrial and
artistic purposes. On the other hand, I would expect to make
clear our expectation that sales of gold by the United States
would not represent more than a small share of our existing gold
holdings, which have a value on the order of $40 to $45 billion
at current market prices.
- Secondly, I recommend that I be authorized to say to the
Ministers that we think it would be desirable for governments
collectively to announce some further steps toward the agreed
objective of reducing the international monetary role of gold.
It probably would contribute to confidence that the change in
domestic U.S. policy would not lead to any market disturbances
if the new international measures could be announced prior to
the date on which private U.S. ownership became legal.
Under present international understandings, national governments are
free to sell gold into private markets, to value gold in their
stocks at whatever price they choose, and to use gold as collateral
for borrowings, but governments may not buy gold from the market or
trade amongst themselves at a market-related price, and the
International Monetary Fund is not permitted to sell gold from its
stocks at a market price. On the basis of my recent discussions in
Europe, I now have the opinion that there would be a widespread
favorable response to a U.S. suggestion that:
- —The IMF now be allowed to
sell its gold gradually to acquire currency resources to
lend to its member nations, including the less-developed
countries;
- —Governments be allowed to buy from the market and to
trade among themselves freely subject only to two
transitional safeguards; namely,
- a)
- There should be no intergovernmental agreement to
take actions or refrain from actions in order to
keep the price of gold within any particular limits;
and
- b)
- During the next two years, no government would
make purchases from the market when the effect would
be to take more gold from the market than had been
sold by governments to the market during that
two-year period.
It seems to me that these measures would move us a long way toward
the objective of demonetizing gold while keeping safeguards against
any actions which could be construed as tending to reestablish the
monetary role of gold.
[Page 257]
It is still possible that the government of France might refuse to go
along with an international consensus on such measures with respect
to gold, although I am sure France will be under considerable
pressure from its European colleagues to accept such a proposal. I
would plan to explain our viewpoint and seek to gain acceptance of
such proposals at the September meetings; but I recommend that I be
authorized to agree with the other governments to proceed, if
necessary, even in the absence of French agreement.
Following the discussions in the first week of September, I would
propose submitting to you the necessary documents to authorize an
announcement on September 16 that private investment in gold in the
United States would be permissible as of October 15, that the U.S.
would be auctioning a stated amount, probably about $250 million, of
its gold stock on October 15 and that there would be additional
further gold auctions in accordance with need from time to time
thereafter.
After reaching, I hope, widespread agreement with the Finance
Ministers of the major countries in the first week of September, and
announcing the schedule for private ownership on September 15, I
would suggest that we would then propose the changes with respect to
gold policy for general consideration by the Annual Meeting of the
IMF starting on Monday,
September 30.4
Naturally, I will report to you as this schedule unfolds, but I would
appreciate your concurrence to start the ball rolling.
