Foreign Relations of the United States, 1969–1976, Volume XXXI, Foreign Economic Policy, 1973–1976

54. Memorandum From Secretary of the Treasury Shultz to President Nixon¹

Washington, undated.

SUBJECT

• Gold Sales

Arthur Burns, Herb Stein, Peter Flanigan, Bill Casey, Paul Volcker and I have reached agreement on the desirability of several significant steps with respect to gold in the near future.

The agreement was reached against the background of credible reports coming to us through both intelligence and financial channels that the financial authorities of the European Community countries are seriously considering an independent decision within the next few weeks—in contravention of current monetary agreements and before a new international agreement has been achieved—to transfer gold among themselves at a price closely related to the current market price ($98.25 last Friday). Some of the European central bankers seem anxious to be able to write up the value of the gold in their reserves from the current official $42.22 price. Others, probably including the French, are concerned about present mandatory procedures for settling a portion of their intra-European debts in gold or gold-related assets at the official price. Undoubtedly, some—but not all European officials—also see the proposed move as enhancing the probability that gold will work its way back into the center of the international monetary system, and facilitate a French-European vision of a new monetary system.

Under the circumstances we feel that:

a) we should strongly urge the Europeans not to take their proposed separate course with respect to gold, since it would be divisive and inconsistent with the efforts to reach broad agreement on a new international monetary system;

b) we should actively support an effort—which we shall probably not have to take the initiative in proposing—to reach a broad concurrence on amending existing agreements so that monetary authorities may sell gold into private markets at the market prices but may not buy gold from any source except at the established official price. (It would be hoped that this procedure would permit a gradual phase-out in the official monetary use of gold and would provide some protection against any drift back toward placing gold at the center of the system);

c) we should make clear that we intend to sell some gold and that we expect at least some others also to sell some gold; and

d) we should decide that all restraints would be removed in the near future on private ownership of gold by U.S. citizens, a step for which you already have authority.

We would like to defer until later a recommendation whether the permission for private U.S. ownership should become effective as soon as we are in a position to start sales or only several months later.

There is probably little chance that we could head-off the European proposal unless we firmly reiterate to them that we consider such action deeply prejudicial to the reform effort and support the alternative approach of permission for, and willingness to implement, official gold sales in the market.

Once the U.S. Government started sales from its gold stocks there is a high probability that the Congress would force permission for private ownership if we did not act fairly promptly. This could create uncertainty in the short run if Americans bought, or were expected to buy, gold in volume. However, such action could ultimately add credibility to our oft-repeated statement that we support gradually phasing gold out of the monetary system. Now that the dollar is stronger, we can take the action with less concern that purchases by U.S. citizens would lead to heavy pressures on the dollar or require mammoth sales from our gold stocks.

If you concur, I would like to authorize Paul Volcker, who is now in Europe,² to explore our thinking confidentially and fully with Helmut Schmidt, the German finance minister, on Wednesday.³ Then, if all has gone well meanwhile, Arthur Burns could push for agreement on the proposals when he meets with the governors of the major central banks in Basle on November 10 and 11. If final agreement is not reached in Basle it would still be possible that agreement could be reached at a non-publicized meeting which I expect to have on December 1 and 2 with the finance ministers of Japan, Germany, France, and the UK, probably in the South of France.⁴

It is likely, though not certain, that France—and in particular Pompidou—will oppose the course we support, arguing that it would prejudice the decisions on the future monetary system. It is possible that such opposition would be ineffective and that on this issue the other European countries would not let France prevent an agreement. But, even if the course we support could not be agreed now, we think our efforts in support of it would probably have proved worthwhile. Our support of a new internationally agreed course would make it difficult for the Economic Community countries to adopt an independent new gold system. We would probably at least have headed-off that potentially divisive act.

George P. Shultz

1. Source: National Archives, RG 56, Records of Secretary of the Treasury George P. Shultz, 1971–1974, Entry 166, Box 6, Gold Sales Ongoing 1973. Secret. Sent under cover of an October 29 memorandum from Shultz to Nixon that reads: “This memo brings you up to date on the question of sales of gold and proposes that we again take part in seeking an agreement along the lines you approved last spring.”
2. Volcker was in Paris October 29–30, attending an OECD meeting.
3. October 31.
4. They met in late November; see Document 57.