70. Memorandum by the Under Secretary of the Treasury for Monetary Affairs (Bennett)1

MEMORANDUM FOR

  • The Honorable Henry Kissinger
  • Secretary of State
  • The Honorable Arthur Burns
  • Chairman, Federal Reserve Board
  • The Honorable Kenneth Rush
  • Counsellor to the President
  • The Honorable Herbert Stein
  • Chairman, Council of Economic Advisers

SUBJECT

  • Gold

Secretary Simon asked that I forward the attached to you with the request that you consider concurring in his forwarding the attached draft memorandum to the President.

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

1.
A draft memorandum to the President;
2.
A memorandum discussing procedures for a proposed auction, [Page 255]together with a draft General Services Administration announcement of such an auction;
3.
A draft Treasury press release announcing the removal of gold ownership restraints and a planned auction of gold;
4.
A draft Executive Order to terminate the gold ownership restraints; and
5.
A draft letter from the President to the Congress, notifying the Congress, in accordance with legislative requirements, that the removal of restraints on gold ownership will not adversely affect the international monetary position of the United States.
Jack F. Bennett

Attachment

Draft Memorandum From Secretary of the Treasury Simon to President Nixon

SUBJECT

  • Discussions on Gold

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.

  1. Source: Ford Library, Arthur Burns Papers, Federal Reserve Board Subject Files, Box B52, Gold, June–Aug. 1974. Confidential.
  2. The first attachment is printed below. The others are attached but not printed.
  3. Over the weekend of September 7–8, Simon and Burns met with British, French, Italian, Japanese, and West German Finance Ministers and officials in the village of Champs-sur-Marne near Paris. No record of the meeting has been found, but a summary of the press conference held by French Finance Minister Fourcade at the conclusion of the meeting is in telegram 21209 from Paris, September 9. (National Archives, RG 59, Central Foreign Policy Files)
  4. The IMF and World Bank held their annual meeting in Washington September 30–October 4.