78. Memorandum From Secretary of the Treasury Simon to President Ford1

Our Negotiations with France on Gold

Our negotiations with France on gold are at a critical stage, and the French have proposed that the matter be discussed at Martinique. While it might not prove possible to reach a settlement on this issue, I think the time is right to try. A resolution of the gold issue between the United States and France would settle the matter worldwide.

The French Position

The orthodox French view is:

  • —That gold should be valued by governments in their accounts at a “realistic” or market-related price (say, $150 per ounce) rather than the present “unrealistic” official price of $42.22 per ounce.
  • —That central banks should immediately be completely free to trade with each other and deal in the private market at such a market-related price.
  • —That gold will play a key if not central role in the international monetary system.

This view is deeply engrained in French policy and has strong public support. It is based on the traditional French attachment to gold as the only asset safe from the perils of political strife and economic turmoil, and it also reflects the belief that gold helps to assure French “independence” by providing the only alternative to a dollar-dominated world monetary system.

While Giscard certainly shares these orthodox French views on gold—and would be constrained by French public opinion even if he didn’t—some of the French Government’s public positions on the subject sound very much like those taken by the United States. Most importantly, both they and we say we want to diminish the role of gold in the international monetary system. Why Giscard takes that position is not clear—he may think this tactic will lead to the kind of international monetary system centered on gold at a high price that he favors, and he may feel that France would be isolated if it pressed for such a system directly and openly. Whatever the reason, it might be desirable to take the French at their public word and try to build an agreement on those points where our views seem to converge.

If a settlement can be reached, it would be helpful to all sides. However, the U.S. is not a demandant on this issue, and failure to reach agreement will in no way mean a loss of U.S. prestige or position.

Elements of a Possible Agreement

A main interest of the U.S. is to move progressively to phase gold out of the international monetary system—the instability of the gold price, limited production and competing demands for non-monetary uses make it a poor foundation for the system. Thus we propose that:

  • —There should be no intergovernmental agreements setting the price or price range for gold.
  • —Gold should have no relationship to the International Monetary Fund different from any other commodity.

A main interest of the French is to eliminate the present rules that prevent governments from trading gold at a market-related price. Also, the French want agreement to prevent sales of IMF gold, and may also want to limit sales of U.S. gold to the market so as to avoid any sharp downward pressure on the market price for gold.

Thus it is conceivable that we could reach an accommodation involving:

  • —Elimination of all governmental restrictions on gold, and of the special status for gold in the IMF (just as the special IMF status of the dollar has already been eliminated).
  • —Prohibition of intergovernmental price fixing for gold.
  • —Limitations (but not prohibition) on the rate of sales to the market of IMF, U.S., and possibly other governments’ gold.

The issues are highly technical and the possibilities of misunderstanding are great. Thus it would be desirable, after a general discussion, to have Minister Fourcade and me meet with our deputies to discuss this matter in detail.

Suggested Talking Points

The U.S. supports strongly a diminished monetary role for gold, and we understand the French share that objective.
We know the French Government favors the removal of all restrictions on governmental transactions in gold, and we accept that as an ultimate objective.
We would think it worthwhile to explore the prospects for an agreement covering both these points, and possibly necessary transitional arrangements. I suggest that our Finance Ministers meet separately to explore the possibilities.
William E. Simon
  1. Source: Ford Library, National Security Adviser, Trip Briefing Books and Cables for President Ford, Box 6, 12/14–16/74—Martinique General (5). Confidential; Nodis. An attached December 13 memorandum from Hormats to Kissinger refers to a memorandum from Simon on gold, and a notation on Hormats’s memorandum indicates Ford saw it. The attached NSC correspondence profile, which lists as its subject “Treasury input re discussion of gold issue at Martinique summit,” indicates that it was noted by the President.
  2. Printed from a copy that bears Simon’s typed signature.