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

73. Letter From Secretary of the Treasury Simon to the Chairman of the Federal Reserve System Board of Governors (Burns)¹

Washington, August 22, 1974.

Dear Arthur:

Following up on our brief lunch-time conversation yesterday, I would like to suggest that we put aside discussion of the appropriate time for lifting the restrictions on private investment in gold in the U.S. until we have some time together on the flight back from Paris.²

It still seems highly desirable to me, however, that we attempt to take advantage of our meeting with the other ministers—and the current period of relative calm in foreign exchange markets—to seek agreement on some further steps which would demonstrate continuing progress toward the agreed goal of phasing gold out of the center of the international monetary system. Could we reach agreement on my presenting to the ministers a set of proposals along the following lines:

1. The major nations should agree to the desirability of amending the IMF Articles:

a. to make clear that the SDR now stands at the center of the system,

b. to remove the existing barriers which would prevent the IMF from selling any of its gold at market prices to gain foreign exchange resources for use in its authorized operations, and

c. to remove the requirement which otherwise would require that 25% of future quota increases be paid in gold.

2. Major nations should agree to discontinue the current absolute prohibition against government purchases of gold from the market and government-to-government trading in gold at market-related prices and should replace this prohibition with a transitional agreement which would last until a further modification were agreed and which would provide that:

a. no government would sell more than 10% of its present holdings of gold within any 12 month period, in the absence of an exceptional IMF concurrence to larger sales,

b. no government would make gold purchases from the market when the effect would be—according to records maintained by the IMF—to take more gold from the market than had been sold by governments into the market during the previous 12 months, and

c. no government would enter into an intergovernmental agreement either to take actions or to refrain from taking actions for the purpose of keeping the market price of gold within any particular limits.

In this formulation I have attempted to frame a reasonable compromise between our differing views as revealed during the last big meeting on the subject. Reluctantly I have added to the package the 10% limitation on sales, the requirement that repurchases be related to sales during the last twelve months only, and the indefinite extension of the transitional period. All of these changes would display a hesitance which concerns me somewhat and all would tend to make negotiation more difficult, but I’m willing to give the package a serious selling effort. Under the circumstances I hope you can forego a provision that purchases by any government be related to sales by that government only. I’m convinced that a package with such a provision would not be negotiable.

Please call me if you would like to discuss the subject further before we depart.

Sincerely yours,

William E. Simon

³

1. Source: Ford Library, Arthur Burns Papers, Federal Reserve Board Subject Files, Box B52, Gold, June–Aug. 1974. Confidential.
2. See footnote 3, Document 70.
3. Simon signed “Bill” above his typed signature.