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

68. Memorandum From the President’s Counselor for Economic Policy (Rush) to President Nixon¹

Washington, June 4, 1974.

SUBJECT

• U.S. Position on Gold

Attached is a brief memo by means of which Secretary Simon has attempted to obtain a unified U.S. position on gold.

Secretary Kissinger, Chairman Burns, and I agree with Secretary Simon’s proposals and recommend that you authorize him to put them forward. Because of a conflict of interest, Mr. Ash has disqualified himself from participation in matters involving policy toward gold.

The proposals would contribute to the fight against inflation in the U.S. They would be popular with Congress and the American people. The Congress will probably legislate permission for private ownership of gold within a matter of weeks in any event if we don’t propose it.

President Giscard and Chancellor Schmidt have indicated to Secretary Shultz that the Europeans will probably do something on their own very soon if a deal cannot be made with us. Secretary Shultz gave them reason to hope that we would come forth with a constructive response to the European proposals and the current extreme European concern about the economic and political situation in Italy. Secretary Kissinger, Secretary Simon and I are strategizing on how to get the maximum proposals in dealing with the new French and German governments.

Mr. Stein disagrees with two aspects of the proposals as indicated in his attached memorandum.² But, Secretary Kissinger, Secretary Simon and I think the package needs to be taken as a whole for negotiating success.

The urgency arises because Secretary Simon is beginning meetings with the major financial leaders starting late today and this subject will be foremost in their minds.

Kenneth Rush

Approve³

Disapprove

See me

Attachment

Washington, undated.

Memorandum Prepared in the Department of the Treasury⁴

A Suggested U.S. Position on Gold

Background

For most of the postwar period the U.S. Government, and only the U.S. Government, freely exchanged its currency for gold with authorized foreign holders. In 1968 the major governments agreed not to buy from, or sell to, the private market, and a two-tier gold price system arose. In August, 1971, the U.S. discontinued transactions in gold with foreign authorities at the official price. The only operationally significant price of gold since then has been the private market price.

In his outline of U.S. monetary reform plans at the IMF meeting in September, 1972, Secretary Shultz stated: “I do not expect governmental holdings of gold to disappear overnight. I do believe orderly procedures are available to facilitate a diminishing role of gold in international monetary affairs in the future.”

Since that speech no practical steps have been taken to implement a diminishing role for gold. Last year the major countries did agree that governments could sell into the private market, but no sales have taken place. Even though the market price of gold has been in the $150 to $180 range in recent months—compared to the pre-August, 1971 official price of $35 per ounce—some governments may have refrained from selling out of fear that government sales into a thin market with no possible governmental buyers would lead to a severe price decline.

About a month ago the European Community finance ministers—in part because of current concern over Italy’s financial difficulties—came up with three proposals:⁵

i. that governments be allowed to trade gold among themselves at market-related prices,

ii. that governments be allowed to buy from the market, and

iii. that some sort of intergovernmental mechanism be set up to limit fluctuations in the market price of gold.

The Europeans have been told that these proposals are unacceptable to the U.S. Government since they would create strong tendencies to move the international monetary system back toward an inflexible—indeed explosive—rigidity.⁶

U.S. Proposals

The U.S. now needs to put forward a position which would:

• —respond constructively to the recent European initiatives and thus reduce the likelihood of a breakdown in international monetary cooperation through decisions by some European governments to go their separate ways in the near future in their monetary treatment of gold;
• —assist nations in adjusting to the new patterns of payments resulting from the large increases in the prices of oil and some other materials; and
• —facilitate the further evolution of the international monetary system in directions already generally agreed.

The proposed position should represent a desirable exercise of U.S. leadership at a time when there is an unusually good opportunity to seek agreement with the new financially-sophisticated governments in France and Germany.

The U.S. position should provide that:

1. Governments should be permitted to sell gold at individually-negotiated, market-related prices to any buyer subject to a limitation—to insure against any inordinate sudden inflationary impact—that no government would sell more than 10% of its present holdings during any twelve-month period during the next three years unless the IMF gave its concurrence to larger sales.

2. The IMF should be permitted to sell from its gold stocks and would be expected gradually to make such sales to obtain additional resources to assist its members.

3. Any IMF member government should be able, as an alternative to direct sales, to employ the IMF to act as its agent in selling gold from its government stocks on an orderly basis over time with an appropriate commission to the IMF and with the IMF being prepared to extend assistance to the selling government at the time the gold was transferred into the custody of the IMF; such IMF assistance should be equivalent to a substantial proportion of the current market value of the gold and should not restrict the selling government’s access to other IMF facilities.

4. Governments should be permitted without restriction to pledge gold as collateral for loans received from other governments or from private lenders.

5. Each government should be permitted at any time to buy, from the market and from other governments, as much gold as it has sold net during the previous twelve months.

6. Gold valuation and settlement obligations should be removed from the Articles of the IMF and from other multilateral monetary agreements.

7. At a time when the change can be introduced without severe risk of market disruption, U.S. citizens should be granted permission to invest in gold and it should be anticipated that in the light of conditions at that time the U.S. Government would feel free to sell gold from its stocks if that should appear desirable to insure that the permission for private ownership of gold did not have an undesirable effect on the U.S. international payments position.

1. Source: National Archives, Nixon Presidential Materials, White House Special Files, Staff Member & Office Files, President’s Office Files, President’s Handwriting, Box 27, June 1974. Confidential. A stamped notation on the memorandum indicates Nixon saw it.
2. Printed as Document 67.
3. President Nixon initialed this option.
4. No classification marking.
5. See footnote 2, Document 63.
6. See Document 64.