THE ECONOMY & THE CITY
De Gaulle's Gold Standard
By NICHOLAS DAVENPORT
IT must be a heavenly experience to attend one of the half-yearly press conferences of Presi- dent de Gaulle and listen to the flowing periods of classic French charged with so many pre- posterous, but often penetrating, ideas. That. on February 4 when he demanded a return to the old gold standard must have been a sublime occasion. No one can deny his statement that the gold exchange standard established by the Bret- ton Woods agreement of 1944 has broken down and that the reason for the breakdown has been the misuse of it mainly by the United States. The parties to that agreement undertook to maintain their currencies at a fixed relationship to the gold dollar, which was the only currency defined in terms of its gold weight, and the understanding was that the US Treasury would buy and sell gold freely at $35 per ounce. Unfortunately dol- lars (owing to the internal gold requirements) have not been made freely convertible into gold.
As the President said, this gold exchange system was natural enough in the aftermath of war, when America virtually held all the gold of the free world--about $25,000 million. Many countries, he admitted, had benefited from this system, including France. But as a result of the huge deficits which America had recently been running on its international payments account the gold reserves of the US Treasury had fallen to $15,088 million while those of the Common Market countries had risen to nearly the same level and would actually exceed it, if their dollar holdings were converted into gold. As everyone knows, M. Jacques Rueff, the fanatical upholder of the gold standard, has been advising the Presi- dent to convert all the French dollar holdings— around $1,000 million—into gold and a start has actually been made.
Of course, the President has political reasons for his support of the extreme views of M. Rueff. He regards the International Monetary Fund, to which the parties to the Bretton Woods agree- ment had to subscribe gold and currencies, as an institution dominated by the Anglo-Saxons Who have manipulated it to. further the use of the dollar and sterling as reserve currencies. The President is quite correct in saying that the prac- tice • for world-trading countries to hold their reserves in dollars and sterling has enabled
America and Britain to run up deficits on their international payments without being called to account and that this practice could become in- flationary. (He might have added that surplus Euro-dollars have been extremely useful in financing the expansion of the Common Market.) He is also correct in arguing that this system has encouraged the export of capital from America and Britain and that American capital in par- ticular has been buying up French concerns with- out having to pay for them in gold. If you analyse the American deficit you will find that there is a huge surplus on visible trade-I–around $7,000 million—and that this surplus is con- verted into a deficit of around $2,000 to $2,500 million by the huge spending on military defence and aid .abroad and by the export of private capital. The export of private capital curiously enough amounts to about $2,500 million a year. This export of paper dollars, according to the General, could become a threat to the indepen- dence of French industry. The General emphasised at his press con- ference that his criticism of the present gold exchange standard implied no lack of friendship towards any country, least of all the United States, but he insisted that the disadvantages of the system were getting worse and that the time for action had come. The recent massive credits —$3,000 million--which had been arranged at twenty-four hours' notice by the so-called Paris club of Ten for the help of Britain in its exchange crisis could not be repeated without straining the system to breaking-point.
How far the President was serious in insisting on the return to the gold standard for the regula- tion of international balances was not clear. The only good thing about the old gold standard was that it broke down with every world crisis--the Napoleonic wars, the Great War, the Great Slump and the Second World War. The fact that it was simple and automatic—a payments deficit being followed automatically by an export of gold which restricted credit, which caused a trade recession, which brought unemployment, which reduced wages and prices until more competitive export prices pushed up exports, brought back gold and started the reverse process—is not now a point which commends itself to governments pledged to full employment and the welfare state. Of course, the disadvantage that there is not enough gold to support a world trade expansion could be countered by increasing the price of gold, which M. Rueff wants to do, but that in itself creates problems, South Africa and Russia being the world's two great gold producers. And America would simply hate to be forced to buy back gold at, say, $70 or $1Q5 an ounce which she has recently been selling at $35 an ounce. None the less, the French seem to be serious in advocat- ing their cru plan which requires all official settlements between members of the Group of Ten (except Canada and Japan) to be made in gold. If members of the group agree that there is a shortage of gold reserves they can create cru, expressed as a percentage of their gold holdings, and distribute it among themselves according to an agreed key. Official settlements can then be made in gold and cru. This is really tantamount to writing up the price of gold. The trouble about the cru plan is that while M. Rueff may be right in saying that you cannot trust nationalistic governments not to create a dangerous amount of credit if left to themselves, those of us who be- lieve in full employment would not trust M. kueff and his friends not to end up with a re- strictive deflationary policy and an inadequate amount of credit.
The General, while demanding stern action, did allow for the fact that the reform of the monetary system could take place within the framework of the IMF. In fact, he called on the Group of Ten to make proposals for 'the essential transitional and complementary measures,' especially those for 'the organisation of international credit.' This gives reason to be- lieve that the first practical step will be the creation of a new composite or multiple inter- national reserve currency (which I described on January 29) and that the cru plan might be brought into operation for the Common Market Six on the lines of the old European Payments Union. Ultimately, I still favour the Brookings Institute scheme which envisaged a union of the two reserve currencies and a floating rate be- e-
THE tween the dollar-sterling bloc and the European gold bloc. This would make for greater flexibility and far less strain in international payments. I wish someone could have put this point to the General at his press conference to see whether he really had original ideas of his own or was merely being the mouthpiece of the Rueffian gold fanatics.
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